I’m beginning my urology career, and my spouse and I are trying to decide if we should buy a home or continue renting. Which is the better option?

The decision to purchase a home or continue renting is a difficult one. Many early-career physicians struggle financially through medical school and residency (perhaps a fellowship too), and once they are an attending physician, want to increase their standard of living dramatically. This often includes purchasing a home. Buying a home has advantages, but it also has its risks and may not be for everyone.

The advantages to purchasing a home are fairly straightforward. You can build equity in the property. The value of the property may appreciate, acting as an investment. However, just like any investment, there is the risk that the value drops instead of rises. There may also be state and federal tax benefits to homeownership.

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The downsides to home ownership are also fairly straightforward. There are added expenses such as homeowner’s insurance, a flood policy, homeowners association fees, property taxes, and higher utility bills. You are responsible for repairs and remodeling. Additionally, home ownership makes it very difficult to relocate.

Those are the more obvious pros and cons, but the debate between homeownership and renting is often more complicated for physicians. Debt levels can be a serious concern. The 2018 median student loan debt for physicians entering their first year as an attending was $200,000. As an attending, a physician’s payments are likely going to jump up dramatically compared to their income-based payments during residency. Physicians should use caution and learn what their student loan responsibilities will be before taking out a mortgage.

Physicians can also be enticed by physician loans. These loans offer low-to-no required down payment, as well as favorable interest rates and terms. For some physicians, these can be excellent options. However, for others, it can result in unsustainable levels of debt. Not paying a down payment means a higher overall debt level, faster interest accumulation, and higher monthly payments. If a physician has $200,000 in student loans and takes out a $500,000- to $800,000-physician loan to purchase a home, they could find themselves $700,000 to $1,000,000 in debt before they’ve worked a day as an attending.

"It is also important for physicians to remember their contracts when considering homeownership"

It is also important for physicians to remember their contracts when considering homeownership. Most first-time attending physician contracts are for 3- to 4-year periods. Following the first contract, many physicians look for new employment that is a better fit. This can result in looking for opportunities away from where they just purchased a home. Owning a home can make relocation difficult.

Additionally, most physician contracts only guarantee a salary for the first 2-3 years and then transition to a relative value unit structure. Many physicians see a drop in their income during this transition. If this drop is not planned for, a once-affordable mortgage may not be moving forward.

Physicians should ask themselves if they really need to purchase a home right away or could they be better served renting for a few years. Renting could buy time to determine if their current location is where they will put down long-term roots and buy time to save for a down payment that produces a manageable mortgage payment amount.

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Overall, there is no one right answer. We recommend speaking with your financial adviser about the pros and cons of home ownership.

Should I take money out of my investment accounts to put a down payment on a house?

The general rule of thumb is, if you think you can earn a higher long-term rate of return on your investments than the interest rate being charged on the mortgage, it makes sense to keep the money invested and pay the mortgage from cash flows. Interest rates currently remain relatively low (about 4%, as of April 1, 2019). Depending on your investment allocation, outperforming current interest rates over a 30-year period should be achievable.

However, if the money is absolutely needed to make a down payment so the monthly cost of purchasing the home is reasonable, then a withdrawal can be OK. Do not tap into an emergency fund to make the down payment. This money should come from a different source.

Mr. Witz is educational program director at MEDIQUS Asset Advisors, Inc. in Chicago. He welcome readers’ questions and can be reached at 800-883-8555 or 

The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

Articles

Ownership has advantages, but debt levels and contracts are considerations, according to Jeff Witz, CFP.

The pros and cons of buying vs. renting your home

The 35-day government shutdown over President Trump’s border wall may have had a direct impact on many urologists beyond the many inconveniences and the cost to taxpayers that it caused-a reduction of 22% in the reimbursement rate for a popular procedure.

Because of the shutdown, leaders representing urology were unable to meet with officials at the Centers for Medicare & Medicaid Services (CMS) to discuss their concerns regarding the agency’s Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgery Center (ASC) Payment System final rule for 2019.

The rule, which has the effect of slashing reimbursement to ASCs for extracorporeal shock wave lithotripsy (ESWL) by 22%, will make it difficult for many patients in rural communities to gain access to this procedure as they seek treatment for kidney stones, according to the major groups representing urologists.

Although unable to change CMS policy for this year, officials from the AUA, LUGPA, and the AACU are working together hoping to convince CMS to make meaningful changes in its 2020 OPPS-ASC payment rule. At press time, a working group representing the three organizations was seeking a meeting with CMS officials to discuss the matter.

At issue is the 2019 rule’s migration of ESWL from Ambulatory Payment Classification (APC) 5375 to 5374, which LUGPA, in Jan. 2 written comments to CMS, said would result in ASCs seeing their ESWL payment rates slashed by some 22%, well below the cost of providing the service. As a result, LUGPA cautioned, many ASCs, particularly those in rural areas with insufficient volume, would be unable to provide ESWL services and patients would be forced to visit hospital outpatient departments.

Deepak Kapoor, MD, LUGPA chairman of Health Policy and past president, explained that by shifting lithotripsy to a lower APC “bucket,” while hospitals make less money, it is still sufficient to cover their cost. But, he said, “CMS did not recognize that most people do not own their own lithotripsy machines. Mobile ESWL providers charge the facility for that machine depending on the locale. Most people rent the machine for the day along with the technical personnel to operate it.”

The rate change still leaves hospitals above the fair market value for the acquisition of these services, Dr. Kapoor said, “but that is no longer the case for ASCs because they now are getting paid about 42% of what the hospital receives to use the exact same machine with the exact same technicians.”

As a result, he added, “Some people are beginning to scramble. Some may be able to renegotiate the contract if is big enough, but for the rural client that is very difficult. CMS failed to properly understand the dynamics. Their base assumption is that most people own the lithotripter. That is not at all the case.”

The change has implications even beyond payment for ESWL services, Dr. Kapoor stressed.

“Moving procedures around within APCs fundamentally alters reimbursement for every other APC because they figure it on weighted cost,” he explained. “When you move the CPT code for lithotripsy, because of the volume of services it completely changes the dynamics of how other procedures within the APC are paid. Consequently, it actually becomes much more complicated than simply moving ESWL back to the original APC.

“Historically, CMS recognized the uniqueness of lithotripsy and considered it in its own bucket. That’s really the ideal solution and what we want to advocate for.”

In its Jan. 2 letter to CMS Administrator Seema Verma, LUGPA offered suggested solutions to the problem:

It could adjust the ASC payment to a higher percentage of the OPPS rate to account for the equipment-intensive nature of the procedure.

It could place HCPCS Code 50590 in a newly created APC 5374A with a payment rate in between the rates set for APCs 5374 and 5375.

It could undo the changes in assignments within the urology APCs that the agency announced in the final rule either for ESWL alone (Code 50590) or for all affected urology procedures until the agency can consider the implications that the payment changes will have on access to ESWL in the ASC setting.

“We had planned on meeting with CMS during the comment period after the final rule was issued, but we got timed out because of the government shutdown,” said Dr. Kapoor. “AUA, AACU, and LUGPA are all working together to help CMS understand the economic ramifications of what they’re doing, as well as the impact on access to care particularly on lower volume hospitals in rural areas. We want to see if we can get it fixed for 2020.”

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AACU President Mark Edney, MD, said the three organizations have been in close contact via their monthly joint conference call.

“It’s a huge threat to the potential availability of lithotripsy services, particularly in rural settings,” he said. “We will be moving services to hospitals and away from ASCs. It is an unfortunate rule; we feel strongly that something needs to be done.”

Vol. 47 No. 5

The pros and cons of buying vs. renting your home

ESWL reimbursement slashed by 22%