Doctors' money mistakes

By Parija Kavilanz @CNNMoney January 16, 2012: 9:48 AM ET

Dr. Jeffrey Meltzer, [left], and Dr. Jim Dahle, say physicians need to smarten up when it comes to business.

NEW YORK (CNNMoney) -- Doctors may be experts at treating patients. But when it comes to running their own businesses, many are making rookie mistakes.

And that's driving many private practices doctors to the brink.

Physicians are poor businesspeople, because they "tend to be so engrossed in the medical part," said Dr. Jeffrey Meltzer, 47, an OB/GYN with American Health Network in Carmel, Ind. "It's an all-encompassing job and takes a huge part of their time."

There are genuine business challenges, like shrinking reimbursements from both Medicare and private insurers and confusion from the new health reform legislation.

But many just make bad financial decisions.

Fresh out of residency, many young doctors have school debt averaging $130,000. Still, that doesn't stop them from spending lavishly, said Paul Keckley, executive director of Deloitte's Center for Health Solutions.

"I had one doctor client who bought a $60,000 BMW, and he doesn't even have a first job yet," said Katherine Vessenes, a certified financial planner, attorney and president of MD Financial, a consulting firm specializing in physicians' finances.

"Doctors in residency have been deprived for so long that some have this sense of entitlement," she said.

Doctors going broke

"Everyone assumes all doctors are rich," said Dr. Jim Dahle, an emergency physician in Utah. "When you start believing that, too, you start living beyond your means.

"Doctors should live by the one house, one spouse mantra," he said. "Most doctors have their earnings delayed by 10 to 15 years. The average physician can't [afford to] have two or three houses and then also save for retirement."

The biggest blunders. The list of doctors' mistakes is long -- one of the worse blunders being they tend not to ask for advice and when they do, they don't listen to it, experts said.

"Medicine is an insulated profession," said Keckley. "Doctors are reluctant to trust opinions of anyone other than their own."

"I had a physician who was making $300,000 a year. I took a lot of time and carefully thought out his retirement portfolio for him to invest in," said Vessenes. "He then goes and talks to his colleagues and asks me if he should instead invest in what they are suggesting."

Other bad moves include taking out loans to make payroll, said Meltzer.

Another is putting their money in risky investments, such as radiology centers, urgent care centers or even medical devices, said Dahle.

"These deals are structured so that doctors are taking the financial risks and these investors reap the rewards," he said. "Not all of these deals are bad, but doctors should at least have an attorney review the terms so that they're protected."

Doctors can also get burned by buying expensive equipment, said Meltzer. And being lax on collecting bills is yet another mistake, he added.

The tide is turning. More physicians are acknowledging their lack of business acumen and getting help, experts said.

Doctors: Why we can't stay afloat

When Dahle, 36, came out of residency five-and-a-half years ago, he didn't know anything about business management or personal finance in medical training.

Still, he had the foresight to seek out a financial adviser to help him manage his personal finances before his career kicked off.

But the adviser put him in high-load, high-expense ratio funds, as well as high-cost, high-commission insurance. "I realized later that this adviser was ripping me off," said Dahle.

So Dahle began educating himself about personal finance and business -- an effort that evolved into the whitecoatinvestor.com, an eight-month-old website that educates physicians about smart money management.

So far, the site averages 30,000 page views monthly, he said.

"I've made some financial mistakes like anyone else," said Dahle. "But through the website, I've been able to interact with hundreds of doctors who have made financial errors and are looking to correct them or at least not make any more."

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