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We delve into the world of alternative career paths for physicians with Tod Stillson, a seasoned family physician and entrepreneur. Discover how chance encounters can lead to transformative career decisions as we explore Tod’s journey to professional freedom through the innovative concepts of micro-corporations and employment lite contracts. Uncover the hidden benefits of these alternative models, from tax efficiency to higher retirement savings, and learn how embracing autonomy and flexibility can redefine success in the medical field.

Tod Stillson is a family physician, entrepreneur, and Amazon best-selling author of Doctor Incorporated: Stop the Insanity of Traditional Employment and Preserve Your Professional Autonomy.

He discusses the KevinMD article, “Physician employment 2.0: Unveiling the secret world of employment lite.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast, and get CME for this episode by clicking on the CME link in the show notes. Today we welcome back Tod Stillson. He’s a family physician and entrepreneur. Today’s KevinMD article is “Physician employment 2.0: Unveiling the secret world of employment lite.” Tod, welcome back to the show.

Tod Stillson: Hey Kevin, it’s great to be back with you and your audience. I always enjoy speaking with you about various issues associated with physicians in the business of medicine.

Kevin Pho: All right, so Tod has been on multiple times. Go to KevinMD.com/podcast to hear his story and prior episodes. But let’s jump right into your KevinMD article, “Physician employment 2.0: Unveiling the secret world of employment lite.” So tell us more about this secret world, Tod.

Tod Stillson: Yeah, so Kevin, employment lite is an option for physicians to work in the current marketplace in a highly aligned contractual relationship with a hospital or an employer, but not truly like a true traditional employment option.

And so it’s sort of secret because employers don’t present it as the primary option. And you really have to kind of be aware that it exists, or ask about it specifically, in order for you to access it. So that’s why I consider it sort of a secret option, yet it’s a very profound and important option for doctors.

Kevin Pho: All right, so in this article you gave the story and case of a doctor who has spent almost a decade working as a W2 employee after finishing residency. Tell us about the story, and maybe that can lead into some of the discussions in employment lite.

Tod Stillson: So I’m going to start with just a simple illustration for our audience. It goes back to, this reveals my age a little bit, back in the 80s and 90s, but Reese’s Peanut Butter Cup used to have a commercial on TV that showed a peanut butter and a piece of chocolate coming together and sort of exploding as they came together and became a Reese’s Peanut Butter Cup. And that’s because it was so like, wow, there’s this product that combined the two things.

And when it comes to physicians working in the marketplace, we kind of assume there’s a binary choice, and that choice is private practice or employment. And that’s kind of the two places that we see people go. But what I’m trying to present to our audience today is the idea that there’s this explosion of actually those two things combining. If you actually took private practice and traditional employment and put them together in this explosion, it would come out as employment lite.

And so we’re going to share a story a little bit and talk about this, but it really is the combined fusion. So I call it a third space, right? It’s not just the binary choice, but it’s an option that the physicians have.

So a typical physician that I speak with, because some of the work I do is SimpliMD in terms of coaching physicians about options, very common, a W2 physician who’s really worked most of his career as W2, really not knowing there’s any other options out there. And so as life changes and transitions happened, this physician was looking for a new job, identified one that was going to be good for he and his family, and was sort of all lined up to sign another W2 contract, which again, that seems like that’s what doctors know to do.

And he happened to run into one of my clients in the surgical dressing room who was talking about his own personal transition to an employment lite contract that happened about three years prior, and how happy he was with it, and how glad he made the change, and how it’s worked out so well for him. And so he said, you know, before you sign that contract, you ought to circle around and talk to Tod and see what the options are.

And so that doctor reached out to me. I talked to him, fortunately he had not signed the contract yet, and I coached him with a few coaching points and tips. And for your note, he was talking to the prospective employer, who lo and behold said, you know, there are some options that we have, and pulled out from their secret drawer the professional services agreement and said, let’s talk a little bit about this structure. And lo and behold, that’s what he did, and he’s starting at that job in less than a month, and has got everything all set up and is quite excited about it.

Kevin Pho: All right, tell us the main benefits of such a contract, the employment lite contract.

Tod Stillson: Yeah, so the main benefits are really multiple, but the things that jump out to me is, number one, it is truly a fusion of traditional employment and private practice, and this is why there’s a benefit.

Number one, there’s the security of working for an employer in the health care market, because, kind of being honest, large is better and bigger, and the large employers are owning the market space in terms of the labor. So you’re aligning yourself with somebody who’s not going to get taken over or eliminated from the playing field. That’s what we’re seeing with a lot of private practices, right? They’re being eliminated. There’s places and options for that out there.

But one of the beautiful things that a private practice has is autonomy and control over their own individual practice, as well as some tax benefits, retirement benefits, and fringe benefit structures that exist for them in private practice. That’s why a lot of doctors like private practice, and that was the model that existed for years and years and years until large corporations took over the marketplace.

So this fusion of the two gives doctors kind of the best of both worlds, the security of working under the safe harbor of another big company, but yet still maintaining micro control and all the benefits of small business.

Kevin Pho: All right, so is this for everybody? What kind of questions should physicians ask themselves if they want to consider an arrangement like this?

Tod Stillson: Yeah, so it’s not for everybody, because quite honestly you will be running your own small business if you do it, OK. And so I’ll say that because of the deficiencies in small business education that doctors currently have, a lot of them are going to be kind of blown out of the water thinking like, oh man, I’m going to be running my own business.

So however, I will say that really the complexity of it is not very complex in this model, because the only employee that you’ll manage is yourself. In this model the employer still manages the HR, the medical office building rent, lease space, employees, contracts, billing, collections, are all done by the company that has the professional services agreement with you. You have no responsibility for that.

Most of the compensation models in these models are basically productivity RVU based or salary based, and that’s really just what it comes out to. You come in, do your work, you get paid for it, but you’re getting paid for it not as a W2 employee, you’re getting paid for it as a 1099 contractor. And that’s where all the magic happens, once that money begins to flow into your household in that manner.

So yeah, that’s kind of the long and short of it. You will be managing yourself, and for a doctor it’s not a big deal, but yet it is still a business. You still would have to file your own taxes, you still have to manage the company and sort of manage the payroll and manage some of the quarterly taxes. But once again I would point out to our audience that that’s easily outsourced. I mean, those are pretty commonly and easily outsourced to an accounting professional to help you with that.

Kevin Pho: So let’s go more granular in terms of the differences for those who aren’t familiar with 1099 income versus W2 income. 1099 income, you do have to take out your quarterly taxes, they’re not automatically taken out when money is given to you. And then there’s deductions, right? So give us a sample of some deductions that people in employment lite contracts are now accessible to.

Tod Stillson: Yeah, so let me just come back to the idea of employment tax first of all. When you’re a W2 employee, you and your employer pay your employment tax to the government for the money that you’ve earned, and it’s a split, 50/50 typically, between the two. When you become self-employed through a micro corporation, now you’re taking on the full responsibility of that employment tax yourself.

Now, on one hand you may initially go, wait a second, now all of a sudden I’m paying more because my employer had been paying a lot of that. The secret to self-employment is trying to get the money into your household through a combination of your own individual self-employment salary and the distributions from your corporation. Your salary is taxed with self-employment taxes, but your distributions do not have self-employment taxes in them. So that’s kind of the secret world of small businesses 101 all across this country. Those small business people know that information. And so that’s the sweet spot that is found in reducing your tax burden a little bit in that process.

But then there are a host of what we call pre-tax business expenses. So this is important for listeners to understand, not post tax, which is what most W2 employees are used to dealing with, which is, how do I manage stuff after I’ve received my pay? These are pre-tax business benefits that include things such as malpractice insurance, CME, health insurance, vehicle use, transportation, et cetera, home office expense, home office rental, a number of expenses that are considered pre-tax and that come off of the income tax that you’ll be paying as a business.

And so I would also add into that, there’s retirement contributions that are also tax advantaged, that many self-employed doctors take advantage of. And by the way, those can be much larger for those doctors who are self-employed.

Kevin Pho: So what about benefits? So things like health insurance, malpractice insurance, disability, life insurance, that is no longer given by the employer. The physician now has to source those.

Tod Stillson: That’s correct. Yeah, so Kevin, that’s a great point. They are sourcing those themselves now, identifying those and taking care of it and managing themselves. So again, a little bit of a responsibility you accept as a small business owner compared to the traditional employment model, in which you are just kind of handed those.

From my perspective as somebody who’s done this for well over a decade, I see huge advantages to being able to source those yourself, not being very difficult, because you get to personalize them. In other words, you get to pick and choose what benefits are going to be maximized to the benefit of your household, and not pay for the ones that you really don’t need. OK, and so you can construct your own benefit plan around you and your household.

And again, there’s a lot of third parties that can help physicians do that. Part of some of the things I do as SimpliMD is helping physicians work through those, and a network of resources as well. But on one level the average physician is kind of scared of that, right? They kind of go, oh my gosh, I have to get my malpractice insurance, oh, I need to figure out where I’m going to get health insurance. But these things really aren’t as complicated or difficult as you might think.

Kevin Pho: So tell us the spectrum of specialties that may or may not be more amenable to an employment lite contract, and how about the different settings that physicians find themselves in, whether it’s a rural versus city setting, academic versus community? Tell us about some of the distribution that may or may not be more amenable to such an arrangement.

Tod Stillson: Yeah, so first of all, because my work is SimpliMD, I see this across the board, across specialty. So there is no kind of dedicated preference for primary care versus specialty care. It really goes across the board, every specialty I see doing this. So I wouldn’t say that one specialty over another really has a corner on this.

At the end of the day though, when it comes to this sort of newer, innovative contract, you have to have employers who are interested in innovation and doing something a little bit different. I was just listening to one of your podcasts this morning when I was running, and the contract lawyer said, well, when we speak to employers about physician contracts, 40 percent of the time they say, this is our cookie-cutter approach to doing this, there’s no room for this, this is the employment contract, you take it or leave it.

Now, on one level that’s a little bit strong. In an urban setting, and in a place where there is a high demand but also a high supply chain for certain physician specialties, that’s going to be the case. The employer is going to have a bit of the power to determine, this is how we do it, we don’t have an option, if you want to work for us you’re going to work as a W2 employee.

Having said that though, just think about that as well, 60 percent of employers are not cookie cutter, are not going to say this is the only way to do it. And that’s why I say this is sort of secret to a lot of doctors. They don’t know that it exists, they don’t know to even ask about it.

And so in most cases it’s going to be in a place where a health care organization is maybe smaller, more rural, more in a position of doing what they can for recruitment and retention of physicians, and so they might be in a battle for certain service line specialties. So it can’t be sort of generalized to any particular location, but in general it depends on how competitive the environment is that you’re working in.

Kevin Pho: Any downsides to such an arrangement?

Tod Stillson: I can tell you, having done this myself for over 10 years and having helped physicians do it, I haven’t found any yet, to be honest, because physicians love it. I mean, Kevin, I get so happy when I’m able to help, like in our case study at the beginning of this podcast, talking about helping physicians and helping people make this transition. They’re so happy, their autonomy has been restored as a doctor, and their sense of control over their life. And frankly, financially you do much better in this arrangement than you would if you’re a W2 employee. It is really a win.

And I have yet to discover a whole lot of downsides beyond simply the fact that you are running a business. There is some responsibility to that, there’s some taxes you have to file, but again, easily outsourced. And taking into account the work and the outsourcing and the cost of that, you still come out way ahead.

Kevin Pho: Now, I know you have a service that guides physicians to these types of arrangements. What other resources can you recommend for physicians who may be interested in this?

Tod Stillson: Yeah, so number one, grab a copy of my book about stopping the insanity of traditional employment. You can buy it on Amazon, just look up my name, Tod Stillson, and type that title in there and you’ll find it, and that tells you the whole story, it gives you a personal view and story of that.

SimpliMD.com does a lot of education, and it is an online education community for physicians that just tries to empower physicians with information so they know that they can do these things.

And frankly, beyond that, there are some individual legal companies and tax advising companies that sort of work with physicians and help them to support this. But quite honestly there’s not a lot of companies out there that holistically support physicians in this process, which is one of the reasons I was inspired to start SimpliMD, to provide sort of a central location, a central hub where physicians could get information and then get connected to professionals who could help them do this.

Kevin Pho: We’re talking to Tod Stillson. He’s a family physician and entrepreneur. Today’s KevinMD article is “Physician employment 2.0: Unveiling the secret world of employment lite.” Tod, as always, we’ll end with some of your take-home messages to the KevinMD audience.

Tod Stillson: Yeah, my take-home message to you and the audience, Kevin, is, it’s time for physicians to regain control of our profession. And one of the ways that you can preserve your professional autonomy is by forming a corporation, a micro corporation, and entering the marketplace as a corporation rather than as an individual.

When you do that, you’re going to empower yourself in the marketplace, but you’re also going to empower yourself professionally. And too many of us have spent too many years working to earn that space, and working to earn that honor of having that, and then yet so quickly turn around and turn it over to an employer as a W2 worker, where we basically begin to do the work for them as though we’re working in their factory. OK, and over time it begins to feel like we’re just working in their health care factory.

And so my admonition to doctors is, empower yourself to control your professional autonomy by looking at an employment lite contract.

Kevin Pho: Tod, as always, thank you so much for sharing your perspective and insight, and thanks again for coming back on the show.

Tod Stillson: Thank you Kevin, it’s great to be with you.