Financial/Legal

Understanding the business side of medicine helps physicians run a successful practice. However, the business side of medicine is not part of the normal curriculum in training and fellowship programs. Physicians come out of training with the knowledge to treat patients but with little or no knowledge of how to get reimbursed for their services. Gastroenterologists provide both medical and surgical services.

Listed below are some of the basic principles for both documentation and reimbursement policies. All reimbursement is based upon Relative Value Units (RVUs) assigned to every service provided. The services are based upon three factors: physician work value, malpractice cost, and practice expense. Those factors added together and multiplied by a conversion factor assigned by the Centers for Medicare & Medicaid Services (CMS) creates the national physician fee schedule. Each Medicare carrier has localities, and there is another percentage that is multiplied based upon geographic location, which will finalize the approved amount for each service. Your Medicare carrier has the actual approved amounts available on their websites with an effective date of Jan. 1. Commercial payers most commonly base contracts on the Medicare Fee Schedule, but each practice and payer relationship is different. For a better understanding, please contact your practice manager for more specific information based on your payer contracts.

Medical necessity is the key to success. If medical necessity is not demonstrated, payers can deny a claim, deny authorization for a lab test and/or diagnostic study, or recoup previously paid claims. Medicare and commercial payers will often have local coverage determinations (LCDs) for procedures and testing that include indications and restrictions along with approved diagnosis codes. Listed below are the four primary services that GI providers perform and provide interpretation for:
 

1. Evaluation and management (E&M) services: There are three criteria that have to be met to support any initial visit with patients: the history obtained, the examination performed, and the development of the treatment plan. There are five levels of service for office visits and three levels for inpatient visits, respectively. The levels are chosen based on the decision-making element of the visit, provided the documentation requirements are met for the level chosen. This is often not an easy selection unless the providers are educated on the E&M criteria. Auditors often see that visits are chosen by “guessing” the level, which leads to choosing either a lower or higher level of service than what was actually provided. Some providers have been instructed that E&M services are not that important since procedures are the major source of revenue for the practice. However, GI practices are visit-driven practices, and the initial visits are often worth more RVUs than some procedures. The E&M visit is truly vital and often the backbone for the medical necessity of any additional procedures and diagnostic services required in order for successful treatment of the patient.

2. Endoscopy and procedural billing: Here, medical necessity must be documented in order to submit charges for what was done. Gastroenterologists will often use multiple techniques when treating different areas within the gastrointestinal tract. Documentation has to include the location of lesions/abnormalities, method of treatment/removal, and the reason(s)/indication(s) for those procedures. There may be different instruments used in the colon (for example, snare in the sigmoid colon or biopsy forceps in the transverse colon). These may be separately reported with an appropriate modifier to indicate that these services were performed to different lesions/abnormalities. However, in order to bill for each of the procedures, all of this has to be documented in the endoscopy report. The physician is responsible for accurate and specific documentation and bringing charges back to the billing staff for claim submission. For a successful practice, a team approach is vital. Physicians and coding staff need to have an open line of communication to make sure that everything is submitted appropriately according to payer policies. Billing staff need to communicate any significant changes to the physicians/providers as these changes occur. Ignorance of payer policy is not considered an appropriate excuse when a payer investigates a claim and potential recoupment of moneys paid.

3. Diagnostic studies: Medical necessity/indication for the testing must be documented in order to submit charges for diagnostic studies. The terms “rule out” and “suspect” don’t completely give coders the reason why a physician suspects the patient might have a condition. Usually, abnormal lab tests, signs, and symptoms will often warrant the need for further investigation, and these are the most crucial indications for testing. Not only is this important for diagnostic studies but also for procedures. Make sure that the interpretation of the test results is clear along with a plan/recommendation(s).

4. Diagnosis codes: Assignment of codes per the International Classification of Diseases, 10th revision, Clinical Modification (ICD-10-CM) is the next and most important step after a visit, diagnostic study, and/or procedure. These codes support medical necessity for the services provided, and specificity of the diagnosis code is vital to successful submission and payment of a claim. Signs and symptoms are valid code choices when ruling out a more significant disease/diagnosis because these support medical necessity for a work-up to determine etiology. Comorbidities that impact the provider’s decision making should also be added as additional diagnoses to support the higher level of decision making. Up to 12 diagnosis codes can be assigned to any type of service provided. This also applies to preauthorization of all services, such as lab tests, radiology studies, GI diagnostic studies, and procedures. If specific information is not in the documentation for your staff to access, payers will often deny certain lab and radiology studies, as well as some procedures. There are 71,932 ICD-10-CM codes to choose from, and it is often difficult to find the “specific” code when doing a search in the electronic health record and billing system. Education and training are essential during the orientation sessions prior to active employment, as well as any time the system is upgraded. The providers should be willing to work with the IT representative(s) in the practice to help make the information easier to access. In other words, what “buzz” words would they like included in the description of the ICD-10-CM code in the practice’s list of favorites? For example, Crohn’s disease and ulcerative colitis have over a hundred choices. The choices are based on the location of the disease and whether the disease is without or with complications. If you are going to choose to provide a higher level of E&M service for a patient with Crohn’s disease of the large intestine because of exacerbation of the disease with bleeding, then the appropriate diagnosis code would be one of the following:

• K50.10 Crohn’s disease of large intestine without complications.
• K50.111 Crohn’s disease of large intestine with rectal bleeding.
• K50.112 Crohn’s disease of large intestine with intestinal obstruction.
• K50.113 Crohn’s disease of large intestine with fistula.
• K50.114 Crohn’s disease of large intestine with abscess.
• K50.118 Crohn’s disease of large intestine with other complication.
• K50.119 Crohn’s disease of large intestine with unspecified complications.

Getting paid for your provided services requires attention to detail and communication with your entire staffing team, including all providers. Make sure that your team is educated on all current issues and services pertaining to gastroenterology practices. If there is ever a question when reviewing a procedure note or any service, ask the provider who performed that service. Often, there will have to be legal corrections to the note before services can be billed. Making sure that the claim you are submitting is “clean” is essential for prompt payment. There are multiple resources available through the AGA that will help guide you with coding and billing. There are webinars, training sessions, and onsite services available via http://agau.gastro.org/diweb/catalog that can be provided for all providers, coding and billing staff, administrators, and clinical staff. Everyone needs to take an active role.
 

Ms. Mueller is a health care consultant with more than 35 years of experience in health care, including ICU/CCU nursing, physician office administration, GI claims submission and adjudication, and seminar instruction. She is president and owner of AskMueller Consulting in Lenzburg, Ill., which provides consulting services for physicians nationwide. Ms. Mueller is a nationally known speaker and the author of many multispecialty medical and surgical coding workbooks. She has a great amount of experience in gastroenterology, surgical subspecialties, and pediatric subspecialties. Her presentations have had audiences with the American Gastroenterological Association (AGA), North American Society for Pediatric Gastroenterology and Nutrition (NASPGAN), Society of Gastroenterology Nurses and Associates, Digestive Disease Week, American Pediatric Surgical Associations, and Decision Health and the Coding Institute. Ms. Mueller has written coding columns for ASGE, NASPGHAN, and AGA. She is the coeditor of the ASGE Coding Primer and also answers the coding hotline for the ASGE.

Understanding the business side of medicine helps physicians run a successful practice. However, the business side of medicine is not part of the normal curriculum in training and fellowship programs. Physicians come out of training with the knowledge to treat patients but with little or no knowledge of how to get reimbursed for their services. Gastroenterologists provide both medical and surgical services.

Listed below are some of the basic principles for both documentation and reimbursement policies. All reimbursement is based upon Relative Value Units (RVUs) assigned to every service provided. The services are based upon three factors: physician work value, malpractice cost, and practice expense. Those factors added together and multiplied by a conversion factor assigned by the Centers for Medicare & Medicaid Services (CMS) creates the national physician fee schedule. Each Medicare carrier has localities, and there is another percentage that is multiplied based upon geographic location, which will finalize the approved amount for each service. Your Medicare carrier has the actual approved amounts available on their websites with an effective date of Jan. 1. Commercial payers most commonly base contracts on the Medicare Fee Schedule, but each practice and payer relationship is different. For a better understanding, please contact your practice manager for more specific information based on your payer contracts.

Medical necessity is the key to success. If medical necessity is not demonstrated, payers can deny a claim, deny authorization for a lab test and/or diagnostic study, or recoup previously paid claims. Medicare and commercial payers will often have local coverage determinations (LCDs) for procedures and testing that include indications and restrictions along with approved diagnosis codes. Listed below are the four primary services that GI providers perform and provide interpretation for:
 

1. Evaluation and management (E&M) services: There are three criteria that have to be met to support any initial visit with patients: the history obtained, the examination performed, and the development of the treatment plan. There are five levels of service for office visits and three levels for inpatient visits, respectively. The levels are chosen based on the decision-making element of the visit, provided the documentation requirements are met for the level chosen. This is often not an easy selection unless the providers are educated on the E&M criteria. Auditors often see that visits are chosen by “guessing” the level, which leads to choosing either a lower or higher level of service than what was actually provided. Some providers have been instructed that E&M services are not that important since procedures are the major source of revenue for the practice. However, GI practices are visit-driven practices, and the initial visits are often worth more RVUs than some procedures. The E&M visit is truly vital and often the backbone for the medical necessity of any additional procedures and diagnostic services required in order for successful treatment of the patient.

2. Endoscopy and procedural billing: Here, medical necessity must be documented in order to submit charges for what was done. Gastroenterologists will often use multiple techniques when treating different areas within the gastrointestinal tract. Documentation has to include the location of lesions/abnormalities, method of treatment/removal, and the reason(s)/indication(s) for those procedures. There may be different instruments used in the colon (for example, snare in the sigmoid colon or biopsy forceps in the transverse colon). These may be separately reported with an appropriate modifier to indicate that these services were performed to different lesions/abnormalities. However, in order to bill for each of the procedures, all of this has to be documented in the endoscopy report. The physician is responsible for accurate and specific documentation and bringing charges back to the billing staff for claim submission. For a successful practice, a team approach is vital. Physicians and coding staff need to have an open line of communication to make sure that everything is submitted appropriately according to payer policies. Billing staff need to communicate any significant changes to the physicians/providers as these changes occur. Ignorance of payer policy is not considered an appropriate excuse when a payer investigates a claim and potential recoupment of moneys paid.

3. Diagnostic studies: Medical necessity/indication for the testing must be documented in order to submit charges for diagnostic studies. The terms “rule out” and “suspect” don’t completely give coders the reason why a physician suspects the patient might have a condition. Usually, abnormal lab tests, signs, and symptoms will often warrant the need for further investigation, and these are the most crucial indications for testing. Not only is this important for diagnostic studies but also for procedures. Make sure that the interpretation of the test results is clear along with a plan/recommendation(s).

4. Diagnosis codes: Assignment of codes per the International Classification of Diseases, 10th revision, Clinical Modification (ICD-10-CM) is the next and most important step after a visit, diagnostic study, and/or procedure. These codes support medical necessity for the services provided, and specificity of the diagnosis code is vital to successful submission and payment of a claim. Signs and symptoms are valid code choices when ruling out a more significant disease/diagnosis because these support medical necessity for a work-up to determine etiology. Comorbidities that impact the provider’s decision making should also be added as additional diagnoses to support the higher level of decision making. Up to 12 diagnosis codes can be assigned to any type of service provided. This also applies to preauthorization of all services, such as lab tests, radiology studies, GI diagnostic studies, and procedures. If specific information is not in the documentation for your staff to access, payers will often deny certain lab and radiology studies, as well as some procedures. There are 71,932 ICD-10-CM codes to choose from, and it is often difficult to find the “specific” code when doing a search in the electronic health record and billing system. Education and training are essential during the orientation sessions prior to active employment, as well as any time the system is upgraded. The providers should be willing to work with the IT representative(s) in the practice to help make the information easier to access. In other words, what “buzz” words would they like included in the description of the ICD-10-CM code in the practice’s list of favorites? For example, Crohn’s disease and ulcerative colitis have over a hundred choices. The choices are based on the location of the disease and whether the disease is without or with complications. If you are going to choose to provide a higher level of E&M service for a patient with Crohn’s disease of the large intestine because of exacerbation of the disease with bleeding, then the appropriate diagnosis code would be one of the following:

• K50.10 Crohn’s disease of large intestine without complications.
• K50.111 Crohn’s disease of large intestine with rectal bleeding.
• K50.112 Crohn’s disease of large intestine with intestinal obstruction.
• K50.113 Crohn’s disease of large intestine with fistula.
• K50.114 Crohn’s disease of large intestine with abscess.
• K50.118 Crohn’s disease of large intestine with other complication.
• K50.119 Crohn’s disease of large intestine with unspecified complications.

Getting paid for your provided services requires attention to detail and communication with your entire staffing team, including all providers. Make sure that your team is educated on all current issues and services pertaining to gastroenterology practices. If there is ever a question when reviewing a procedure note or any service, ask the provider who performed that service. Often, there will have to be legal corrections to the note before services can be billed. Making sure that the claim you are submitting is “clean” is essential for prompt payment. There are multiple resources available through the AGA that will help guide you with coding and billing. There are webinars, training sessions, and onsite services available via http://agau.gastro.org/diweb/catalog that can be provided for all providers, coding and billing staff, administrators, and clinical staff. Everyone needs to take an active role.
 

Ms. Mueller is a health care consultant with more than 35 years of experience in health care, including ICU/CCU nursing, physician office administration, GI claims submission and adjudication, and seminar instruction. She is president and owner of AskMueller Consulting in Lenzburg, Ill., which provides consulting services for physicians nationwide. Ms. Mueller is a nationally known speaker and the author of many multispecialty medical and surgical coding workbooks. She has a great amount of experience in gastroenterology, surgical subspecialties, and pediatric subspecialties. Her presentations have had audiences with the American Gastroenterological Association (AGA), North American Society for Pediatric Gastroenterology and Nutrition (NASPGAN), Society of Gastroenterology Nurses and Associates, Digestive Disease Week, American Pediatric Surgical Associations, and Decision Health and the Coding Institute. Ms. Mueller has written coding columns for ASGE, NASPGHAN, and AGA. She is the coeditor of the ASGE Coding Primer and also answers the coding hotline for the ASGE.

Understanding the business side of medicine helps physicians run a successful practice. However, the business side of medicine is not part of the normal curriculum in training and fellowship programs. Physicians come out of training with the knowledge to treat patients but with little or no knowledge of how to get reimbursed for their services. Gastroenterologists provide both medical and surgical services.

Listed below are some of the basic principles for both documentation and reimbursement policies. All reimbursement is based upon Relative Value Units (RVUs) assigned to every service provided. The services are based upon three factors: physician work value, malpractice cost, and practice expense. Those factors added together and multiplied by a conversion factor assigned by the Centers for Medicare & Medicaid Services (CMS) creates the national physician fee schedule. Each Medicare carrier has localities, and there is another percentage that is multiplied based upon geographic location, which will finalize the approved amount for each service. Your Medicare carrier has the actual approved amounts available on their websites with an effective date of Jan. 1. Commercial payers most commonly base contracts on the Medicare Fee Schedule, but each practice and payer relationship is different. For a better understanding, please contact your practice manager for more specific information based on your payer contracts.

Medical necessity is the key to success. If medical necessity is not demonstrated, payers can deny a claim, deny authorization for a lab test and/or diagnostic study, or recoup previously paid claims. Medicare and commercial payers will often have local coverage determinations (LCDs) for procedures and testing that include indications and restrictions along with approved diagnosis codes. Listed below are the four primary services that GI providers perform and provide interpretation for:
 

1. Evaluation and management (E&M) services: There are three criteria that have to be met to support any initial visit with patients: the history obtained, the examination performed, and the development of the treatment plan. There are five levels of service for office visits and three levels for inpatient visits, respectively. The levels are chosen based on the decision-making element of the visit, provided the documentation requirements are met for the level chosen. This is often not an easy selection unless the providers are educated on the E&M criteria. Auditors often see that visits are chosen by “guessing” the level, which leads to choosing either a lower or higher level of service than what was actually provided. Some providers have been instructed that E&M services are not that important since procedures are the major source of revenue for the practice. However, GI practices are visit-driven practices, and the initial visits are often worth more RVUs than some procedures. The E&M visit is truly vital and often the backbone for the medical necessity of any additional procedures and diagnostic services required in order for successful treatment of the patient.

2. Endoscopy and procedural billing: Here, medical necessity must be documented in order to submit charges for what was done. Gastroenterologists will often use multiple techniques when treating different areas within the gastrointestinal tract. Documentation has to include the location of lesions/abnormalities, method of treatment/removal, and the reason(s)/indication(s) for those procedures. There may be different instruments used in the colon (for example, snare in the sigmoid colon or biopsy forceps in the transverse colon). These may be separately reported with an appropriate modifier to indicate that these services were performed to different lesions/abnormalities. However, in order to bill for each of the procedures, all of this has to be documented in the endoscopy report. The physician is responsible for accurate and specific documentation and bringing charges back to the billing staff for claim submission. For a successful practice, a team approach is vital. Physicians and coding staff need to have an open line of communication to make sure that everything is submitted appropriately according to payer policies. Billing staff need to communicate any significant changes to the physicians/providers as these changes occur. Ignorance of payer policy is not considered an appropriate excuse when a payer investigates a claim and potential recoupment of moneys paid.

3. Diagnostic studies: Medical necessity/indication for the testing must be documented in order to submit charges for diagnostic studies. The terms “rule out” and “suspect” don’t completely give coders the reason why a physician suspects the patient might have a condition. Usually, abnormal lab tests, signs, and symptoms will often warrant the need for further investigation, and these are the most crucial indications for testing. Not only is this important for diagnostic studies but also for procedures. Make sure that the interpretation of the test results is clear along with a plan/recommendation(s).

4. Diagnosis codes: Assignment of codes per the International Classification of Diseases, 10th revision, Clinical Modification (ICD-10-CM) is the next and most important step after a visit, diagnostic study, and/or procedure. These codes support medical necessity for the services provided, and specificity of the diagnosis code is vital to successful submission and payment of a claim. Signs and symptoms are valid code choices when ruling out a more significant disease/diagnosis because these support medical necessity for a work-up to determine etiology. Comorbidities that impact the provider’s decision making should also be added as additional diagnoses to support the higher level of decision making. Up to 12 diagnosis codes can be assigned to any type of service provided. This also applies to preauthorization of all services, such as lab tests, radiology studies, GI diagnostic studies, and procedures. If specific information is not in the documentation for your staff to access, payers will often deny certain lab and radiology studies, as well as some procedures. There are 71,932 ICD-10-CM codes to choose from, and it is often difficult to find the “specific” code when doing a search in the electronic health record and billing system. Education and training are essential during the orientation sessions prior to active employment, as well as any time the system is upgraded. The providers should be willing to work with the IT representative(s) in the practice to help make the information easier to access. In other words, what “buzz” words would they like included in the description of the ICD-10-CM code in the practice’s list of favorites? For example, Crohn’s disease and ulcerative colitis have over a hundred choices. The choices are based on the location of the disease and whether the disease is without or with complications. If you are going to choose to provide a higher level of E&M service for a patient with Crohn’s disease of the large intestine because of exacerbation of the disease with bleeding, then the appropriate diagnosis code would be one of the following:

• K50.10 Crohn’s disease of large intestine without complications.
• K50.111 Crohn’s disease of large intestine with rectal bleeding.
• K50.112 Crohn’s disease of large intestine with intestinal obstruction.
• K50.113 Crohn’s disease of large intestine with fistula.
• K50.114 Crohn’s disease of large intestine with abscess.
• K50.118 Crohn’s disease of large intestine with other complication.
• K50.119 Crohn’s disease of large intestine with unspecified complications.

Getting paid for your provided services requires attention to detail and communication with your entire staffing team, including all providers. Make sure that your team is educated on all current issues and services pertaining to gastroenterology practices. If there is ever a question when reviewing a procedure note or any service, ask the provider who performed that service. Often, there will have to be legal corrections to the note before services can be billed. Making sure that the claim you are submitting is “clean” is essential for prompt payment. There are multiple resources available through the AGA that will help guide you with coding and billing. There are webinars, training sessions, and onsite services available via http://agau.gastro.org/diweb/catalog that can be provided for all providers, coding and billing staff, administrators, and clinical staff. Everyone needs to take an active role.
 

Ms. Mueller is a health care consultant with more than 35 years of experience in health care, including ICU/CCU nursing, physician office administration, GI claims submission and adjudication, and seminar instruction. She is president and owner of AskMueller Consulting in Lenzburg, Ill., which provides consulting services for physicians nationwide. Ms. Mueller is a nationally known speaker and the author of many multispecialty medical and surgical coding workbooks. She has a great amount of experience in gastroenterology, surgical subspecialties, and pediatric subspecialties. Her presentations have had audiences with the American Gastroenterological Association (AGA), North American Society for Pediatric Gastroenterology and Nutrition (NASPGAN), Society of Gastroenterology Nurses and Associates, Digestive Disease Week, American Pediatric Surgical Associations, and Decision Health and the Coding Institute. Ms. Mueller has written coding columns for ASGE, NASPGHAN, and AGA. She is the coeditor of the ASGE Coding Primer and also answers the coding hotline for the ASGE.

Financial planning for families can involve multiple investment goals. The big ones usually are investing for retirement and for your children’s college expenses. With any investment strategy, once you have identified an investment goal, you will want to utilize the right investment account to achieve that goal. If investing for future college expenses is your goal, then one of the investment accounts you will want to utilize is called a 529 plan.

What is a 529 plan?

A 529 plan is a tax-favored account authorized by Section 529 of the Internal Revenue Code and sponsored by a state or educational institution. These plans have specific tax-saving features to them, compared with other taxable accounts, which are listed below. To begin with, there are two types of 529 plans: prepaid tuition plans and education savings plans. Every state has at least one type of 529 plan. Additionally, some private colleges sponsor a prepaid tuition plan.

Prepaid tuition plan

The first type of 529 account is a prepaid tuition plan. These let an account owner purchase college credits (or units) for participating colleges or universities at today’s prices to be used for the student’s future tuition charges. The states that sponsor prepaid plans do so primarily for the benefit of their in-state public colleges and universities. Things to know about the prepaid plans: States may or may not guarantee that the prepaid units keep up with increases in tuition charges. The plan also may have a state residency requirement. If the student decides not to attend one of the eligible schools, the equivalent payout may be less than had the student attended one of the participating institutions. There are no federal guarantees on the state prepaid plans and they are not available for private elementary and high school programs.

Education savings plan

The second type of 529 account is an education savings plan, an investment account into which you can invest your after-tax dollars. The intent with these accounts is to grow the balance for use at a future date. These are tax-deferred accounts, which means each year the interest, dividends, and capital gains created within the account do not show up on your tax return. If the funds are used for a “qualified” higher-education expense, then gains on the account are not taxed upon withdrawal.

As with most investments, the longer your money is invested, the more time it has to grow via accumulated interest, dividends, and appreciation. The larger the growth, the larger the tax benefits. This offers a tremendous advantage for a high-income and high-tax bracket household to invest for future goals (such as private school tuition or college expenses). By contrast, if you had invested in a fully taxable account, you would be subject to taxes each year on the interest, dividends, and capital gain distributions. Also, with taxable accounts, your investments would be subject to capital gains tax on the growth when they are sold to pay for those future expenses.

An account owner may choose among a range of investment options that the 529 plan provides. These are typically individual mutual funds or preformed mutual fund portfolios. The portfolios may have a fixed allocation percentage that stays the same over time or come “age-weighted,” meaning the investment allocation becomes more conservative the closer the student gets to college age when withdrawals would occur. This is a similar approach to the “target retirement date” offerings one sees in retirement accounts.

If one is using the 529 account for the student’s elementary or high school years, the investment time frame may be shorter and necessitate a more conservative approach, as the time for withdrawals would be nearer than the college years. As with most investments, the account can lose value based on investment performance.
 

Owner versus beneficiary

There are two parties to any 529 plan account: The account owner, who has control over the account and can name the beneficiary to the account, and the beneficiary (the student). The account owner can change beneficiaries on the account and can even name themselves as the beneficiary. One can name anyone as the beneficiary (e.g., child, friend, relative, yourself). You can be proactive by creating an account and naming yourself the beneficiary now, before switching to your child in the future. The account owner can live in one state with the beneficiary in another and invest in the 529 from a third state, and the student may eventually go to an educational institution in a fourth state. The 529 education savings account is not limited to any specific college, as a prepaid plan may be.

Withdrawals from 529s

If a 529 account withdrawal is for qualified higher education expenses or tuition for elementary or secondary schools, earnings are not subject to federal income tax or, in many cases, state income tax. Qualified withdrawals need to take place in the same tax year as the qualified expense.

Withdrawals not used for qualified higher education expenses in that year are considered “nonqualified” and would be subject to tax and 10% penalty on the earnings. State and local taxes may apply as well.

You can use the proceeds from the account free of taxes for the following qualified higher-education expenses:

• Tuition and school fees for both full and part time students at an eligible college, university, trade, or vocational institution.
• Room and board if the student is enrolled at more than half-time status. The amount up to the school’s room and board charges are eligible if paid directly to the school or to a landlord if living in nonschool housing. If actual charges to the landlord exceed the schools’ charges, then the amount above the school’s charges would be considered an excess withdrawal.
• Required books, supplies, and equipment for the academic program. Computer and technology equipment, printers, and required software, and such related services as Internet access also are qualified expenses.
• Private elementary or secondary school tuition up to $10,000 annually also is a qualified expense for 529 withdrawals.

Health insurance for the student and transportation-related costs to and from the school are not qualified expenses.
 

Contributions and fees

Like all investments, the fees associated with a 529 account need to be considered, as excess fees lower the investment returns. Prepaid tuition plans may charge initial application, transaction, and ongoing administrative fees. Investment 529 accounts may also have administrative costs such as program management fees, per-transaction fees, and the underlying investment expense ratios. Some states have broker-sold plans as well as direct-sold plans. Broker-sold plans can be purchased only through a broker and have the additional expenses associated with that either in the form of a load (sales charge) or higher expense ratio.

Contributions to a 529 plan can only be made in cash. If you currently have other investments, they need to be liquidated first (with the associated tax consequence) and then the proceeds invested into the 529 plan. Establishing the account and ongoing contributions are subject to gift tax limits ($15,000 for 2019). A married couple may make a “joint gift” to the account to double the limit. The 529 plans also allow the owner to front-load the account in 1 year with up to 5 years’ worth of gift limit contributions all at once. This lump sum is treated for tax reasons as a pro-rata 5 consecutive years of contributions all at once. Any additional gifts to that beneficiary during that year and the remaining four would be subject to gift tax issues if it means the annual gift limits were exceeded. Contributions are considered a “completed gift” for gift- and estate-tax purposes even though the account owner retains an element of control. The up-front 5-year gift election is available only on 529 accounts and is a great way for parents and grandparents (hint-hint) to reduce their estates and get a significant initial balance into the account. This can come in handy for those who may have procrastinated working toward this investment goal and need to catch up.

If the beneficiary does not need all or some of the funds for qualified higher education expenses, the account owner has options: One can change beneficiary to another relative who may need the funds or keep the account going and eventually add a grandchild as a beneficiary. Graduate school expenses also are eligible. A student can have multiple 529 accounts set up in their name.
 

Additional tax considerations

Education Tax Credits like the American Opportunity Tax Credit and the Lifetime Learning Credit have income phase-outs that you may or may not be eligible for based on your income. Education expenses used to qualify for the tax-free withdrawal from a 529 plan cannot be used to claim these tax credits. Several states offer state income tax deductions for contributions to a 529 plan but may have eligibility limited to the in-state plan only. It is wise to look to your own state’s plan first to see if that is the case and consider that as a factor when you choose a plan right for you. Refer to your tax professional for your eligibility.

In conclusion, 529 savings plans represent a tax-free way to grow your investments for future education expenses down the road, even if you don’t have a child yet. Speak to your financial adviser to learn about plans and contribution schedules that work with your current and future investing goals.
 

Good sources for further information include:

• www.savingforcollege.com.
• www.irs.gov/forms-pubs/about-publication-970.
• www.finra.org/investors/saving-college.

Mr. Clancy is director of financial planning, Drexel University College of Medicine.

Financial planning for families can involve multiple investment goals. The big ones usually are investing for retirement and for your children’s college expenses. With any investment strategy, once you have identified an investment goal, you will want to utilize the right investment account to achieve that goal. If investing for future college expenses is your goal, then one of the investment accounts you will want to utilize is called a 529 plan.

What is a 529 plan?

A 529 plan is a tax-favored account authorized by Section 529 of the Internal Revenue Code and sponsored by a state or educational institution. These plans have specific tax-saving features to them, compared with other taxable accounts, which are listed below. To begin with, there are two types of 529 plans: prepaid tuition plans and education savings plans. Every state has at least one type of 529 plan. Additionally, some private colleges sponsor a prepaid tuition plan.

Prepaid tuition plan

The first type of 529 account is a prepaid tuition plan. These let an account owner purchase college credits (or units) for participating colleges or universities at today’s prices to be used for the student’s future tuition charges. The states that sponsor prepaid plans do so primarily for the benefit of their in-state public colleges and universities. Things to know about the prepaid plans: States may or may not guarantee that the prepaid units keep up with increases in tuition charges. The plan also may have a state residency requirement. If the student decides not to attend one of the eligible schools, the equivalent payout may be less than had the student attended one of the participating institutions. There are no federal guarantees on the state prepaid plans and they are not available for private elementary and high school programs.

Education savings plan

The second type of 529 account is an education savings plan, an investment account into which you can invest your after-tax dollars. The intent with these accounts is to grow the balance for use at a future date. These are tax-deferred accounts, which means each year the interest, dividends, and capital gains created within the account do not show up on your tax return. If the funds are used for a “qualified” higher-education expense, then gains on the account are not taxed upon withdrawal.

As with most investments, the longer your money is invested, the more time it has to grow via accumulated interest, dividends, and appreciation. The larger the growth, the larger the tax benefits. This offers a tremendous advantage for a high-income and high-tax bracket household to invest for future goals (such as private school tuition or college expenses). By contrast, if you had invested in a fully taxable account, you would be subject to taxes each year on the interest, dividends, and capital gain distributions. Also, with taxable accounts, your investments would be subject to capital gains tax on the growth when they are sold to pay for those future expenses.

An account owner may choose among a range of investment options that the 529 plan provides. These are typically individual mutual funds or preformed mutual fund portfolios. The portfolios may have a fixed allocation percentage that stays the same over time or come “age-weighted,” meaning the investment allocation becomes more conservative the closer the student gets to college age when withdrawals would occur. This is a similar approach to the “target retirement date” offerings one sees in retirement accounts.

If one is using the 529 account for the student’s elementary or high school years, the investment time frame may be shorter and necessitate a more conservative approach, as the time for withdrawals would be nearer than the college years. As with most investments, the account can lose value based on investment performance.
 

Owner versus beneficiary

There are two parties to any 529 plan account: The account owner, who has control over the account and can name the beneficiary to the account, and the beneficiary (the student). The account owner can change beneficiaries on the account and can even name themselves as the beneficiary. One can name anyone as the beneficiary (e.g., child, friend, relative, yourself). You can be proactive by creating an account and naming yourself the beneficiary now, before switching to your child in the future. The account owner can live in one state with the beneficiary in another and invest in the 529 from a third state, and the student may eventually go to an educational institution in a fourth state. The 529 education savings account is not limited to any specific college, as a prepaid plan may be.

Withdrawals from 529s

If a 529 account withdrawal is for qualified higher education expenses or tuition for elementary or secondary schools, earnings are not subject to federal income tax or, in many cases, state income tax. Qualified withdrawals need to take place in the same tax year as the qualified expense.

Withdrawals not used for qualified higher education expenses in that year are considered “nonqualified” and would be subject to tax and 10% penalty on the earnings. State and local taxes may apply as well.

You can use the proceeds from the account free of taxes for the following qualified higher-education expenses:

• Tuition and school fees for both full and part time students at an eligible college, university, trade, or vocational institution.
• Room and board if the student is enrolled at more than half-time status. The amount up to the school’s room and board charges are eligible if paid directly to the school or to a landlord if living in nonschool housing. If actual charges to the landlord exceed the schools’ charges, then the amount above the school’s charges would be considered an excess withdrawal.
• Required books, supplies, and equipment for the academic program. Computer and technology equipment, printers, and required software, and such related services as Internet access also are qualified expenses.
• Private elementary or secondary school tuition up to $10,000 annually also is a qualified expense for 529 withdrawals.

Health insurance for the student and transportation-related costs to and from the school are not qualified expenses.
 

Contributions and fees

Like all investments, the fees associated with a 529 account need to be considered, as excess fees lower the investment returns. Prepaid tuition plans may charge initial application, transaction, and ongoing administrative fees. Investment 529 accounts may also have administrative costs such as program management fees, per-transaction fees, and the underlying investment expense ratios. Some states have broker-sold plans as well as direct-sold plans. Broker-sold plans can be purchased only through a broker and have the additional expenses associated with that either in the form of a load (sales charge) or higher expense ratio.

Contributions to a 529 plan can only be made in cash. If you currently have other investments, they need to be liquidated first (with the associated tax consequence) and then the proceeds invested into the 529 plan. Establishing the account and ongoing contributions are subject to gift tax limits ($15,000 for 2019). A married couple may make a “joint gift” to the account to double the limit. The 529 plans also allow the owner to front-load the account in 1 year with up to 5 years’ worth of gift limit contributions all at once. This lump sum is treated for tax reasons as a pro-rata 5 consecutive years of contributions all at once. Any additional gifts to that beneficiary during that year and the remaining four would be subject to gift tax issues if it means the annual gift limits were exceeded. Contributions are considered a “completed gift” for gift- and estate-tax purposes even though the account owner retains an element of control. The up-front 5-year gift election is available only on 529 accounts and is a great way for parents and grandparents (hint-hint) to reduce their estates and get a significant initial balance into the account. This can come in handy for those who may have procrastinated working toward this investment goal and need to catch up.

If the beneficiary does not need all or some of the funds for qualified higher education expenses, the account owner has options: One can change beneficiary to another relative who may need the funds or keep the account going and eventually add a grandchild as a beneficiary. Graduate school expenses also are eligible. A student can have multiple 529 accounts set up in their name.
 

Additional tax considerations

Education Tax Credits like the American Opportunity Tax Credit and the Lifetime Learning Credit have income phase-outs that you may or may not be eligible for based on your income. Education expenses used to qualify for the tax-free withdrawal from a 529 plan cannot be used to claim these tax credits. Several states offer state income tax deductions for contributions to a 529 plan but may have eligibility limited to the in-state plan only. It is wise to look to your own state’s plan first to see if that is the case and consider that as a factor when you choose a plan right for you. Refer to your tax professional for your eligibility.

In conclusion, 529 savings plans represent a tax-free way to grow your investments for future education expenses down the road, even if you don’t have a child yet. Speak to your financial adviser to learn about plans and contribution schedules that work with your current and future investing goals.
 

Good sources for further information include:

• www.savingforcollege.com.
• www.irs.gov/forms-pubs/about-publication-970.
• www.finra.org/investors/saving-college.

Mr. Clancy is director of financial planning, Drexel University College of Medicine.

Financial planning for families can involve multiple investment goals. The big ones usually are investing for retirement and for your children’s college expenses. With any investment strategy, once you have identified an investment goal, you will want to utilize the right investment account to achieve that goal. If investing for future college expenses is your goal, then one of the investment accounts you will want to utilize is called a 529 plan.

What is a 529 plan?

A 529 plan is a tax-favored account authorized by Section 529 of the Internal Revenue Code and sponsored by a state or educational institution. These plans have specific tax-saving features to them, compared with other taxable accounts, which are listed below. To begin with, there are two types of 529 plans: prepaid tuition plans and education savings plans. Every state has at least one type of 529 plan. Additionally, some private colleges sponsor a prepaid tuition plan.

Prepaid tuition plan

The first type of 529 account is a prepaid tuition plan. These let an account owner purchase college credits (or units) for participating colleges or universities at today’s prices to be used for the student’s future tuition charges. The states that sponsor prepaid plans do so primarily for the benefit of their in-state public colleges and universities. Things to know about the prepaid plans: States may or may not guarantee that the prepaid units keep up with increases in tuition charges. The plan also may have a state residency requirement. If the student decides not to attend one of the eligible schools, the equivalent payout may be less than had the student attended one of the participating institutions. There are no federal guarantees on the state prepaid plans and they are not available for private elementary and high school programs.

Education savings plan

The second type of 529 account is an education savings plan, an investment account into which you can invest your after-tax dollars. The intent with these accounts is to grow the balance for use at a future date. These are tax-deferred accounts, which means each year the interest, dividends, and capital gains created within the account do not show up on your tax return. If the funds are used for a “qualified” higher-education expense, then gains on the account are not taxed upon withdrawal.

As with most investments, the longer your money is invested, the more time it has to grow via accumulated interest, dividends, and appreciation. The larger the growth, the larger the tax benefits. This offers a tremendous advantage for a high-income and high-tax bracket household to invest for future goals (such as private school tuition or college expenses). By contrast, if you had invested in a fully taxable account, you would be subject to taxes each year on the interest, dividends, and capital gain distributions. Also, with taxable accounts, your investments would be subject to capital gains tax on the growth when they are sold to pay for those future expenses.

An account owner may choose among a range of investment options that the 529 plan provides. These are typically individual mutual funds or preformed mutual fund portfolios. The portfolios may have a fixed allocation percentage that stays the same over time or come “age-weighted,” meaning the investment allocation becomes more conservative the closer the student gets to college age when withdrawals would occur. This is a similar approach to the “target retirement date” offerings one sees in retirement accounts.

If one is using the 529 account for the student’s elementary or high school years, the investment time frame may be shorter and necessitate a more conservative approach, as the time for withdrawals would be nearer than the college years. As with most investments, the account can lose value based on investment performance.
 

Owner versus beneficiary

There are two parties to any 529 plan account: The account owner, who has control over the account and can name the beneficiary to the account, and the beneficiary (the student). The account owner can change beneficiaries on the account and can even name themselves as the beneficiary. One can name anyone as the beneficiary (e.g., child, friend, relative, yourself). You can be proactive by creating an account and naming yourself the beneficiary now, before switching to your child in the future. The account owner can live in one state with the beneficiary in another and invest in the 529 from a third state, and the student may eventually go to an educational institution in a fourth state. The 529 education savings account is not limited to any specific college, as a prepaid plan may be.

Withdrawals from 529s

If a 529 account withdrawal is for qualified higher education expenses or tuition for elementary or secondary schools, earnings are not subject to federal income tax or, in many cases, state income tax. Qualified withdrawals need to take place in the same tax year as the qualified expense.

Withdrawals not used for qualified higher education expenses in that year are considered “nonqualified” and would be subject to tax and 10% penalty on the earnings. State and local taxes may apply as well.

You can use the proceeds from the account free of taxes for the following qualified higher-education expenses:

• Tuition and school fees for both full and part time students at an eligible college, university, trade, or vocational institution.
• Room and board if the student is enrolled at more than half-time status. The amount up to the school’s room and board charges are eligible if paid directly to the school or to a landlord if living in nonschool housing. If actual charges to the landlord exceed the schools’ charges, then the amount above the school’s charges would be considered an excess withdrawal.
• Required books, supplies, and equipment for the academic program. Computer and technology equipment, printers, and required software, and such related services as Internet access also are qualified expenses.
• Private elementary or secondary school tuition up to $10,000 annually also is a qualified expense for 529 withdrawals.

Health insurance for the student and transportation-related costs to and from the school are not qualified expenses.
 

Contributions and fees

Like all investments, the fees associated with a 529 account need to be considered, as excess fees lower the investment returns. Prepaid tuition plans may charge initial application, transaction, and ongoing administrative fees. Investment 529 accounts may also have administrative costs such as program management fees, per-transaction fees, and the underlying investment expense ratios. Some states have broker-sold plans as well as direct-sold plans. Broker-sold plans can be purchased only through a broker and have the additional expenses associated with that either in the form of a load (sales charge) or higher expense ratio.

Contributions to a 529 plan can only be made in cash. If you currently have other investments, they need to be liquidated first (with the associated tax consequence) and then the proceeds invested into the 529 plan. Establishing the account and ongoing contributions are subject to gift tax limits ($15,000 for 2019). A married couple may make a “joint gift” to the account to double the limit. The 529 plans also allow the owner to front-load the account in 1 year with up to 5 years’ worth of gift limit contributions all at once. This lump sum is treated for tax reasons as a pro-rata 5 consecutive years of contributions all at once. Any additional gifts to that beneficiary during that year and the remaining four would be subject to gift tax issues if it means the annual gift limits were exceeded. Contributions are considered a “completed gift” for gift- and estate-tax purposes even though the account owner retains an element of control. The up-front 5-year gift election is available only on 529 accounts and is a great way for parents and grandparents (hint-hint) to reduce their estates and get a significant initial balance into the account. This can come in handy for those who may have procrastinated working toward this investment goal and need to catch up.

If the beneficiary does not need all or some of the funds for qualified higher education expenses, the account owner has options: One can change beneficiary to another relative who may need the funds or keep the account going and eventually add a grandchild as a beneficiary. Graduate school expenses also are eligible. A student can have multiple 529 accounts set up in their name.
 

Additional tax considerations

Education Tax Credits like the American Opportunity Tax Credit and the Lifetime Learning Credit have income phase-outs that you may or may not be eligible for based on your income. Education expenses used to qualify for the tax-free withdrawal from a 529 plan cannot be used to claim these tax credits. Several states offer state income tax deductions for contributions to a 529 plan but may have eligibility limited to the in-state plan only. It is wise to look to your own state’s plan first to see if that is the case and consider that as a factor when you choose a plan right for you. Refer to your tax professional for your eligibility.

In conclusion, 529 savings plans represent a tax-free way to grow your investments for future education expenses down the road, even if you don’t have a child yet. Speak to your financial adviser to learn about plans and contribution schedules that work with your current and future investing goals.
 

Good sources for further information include:

• www.savingforcollege.com.
• www.irs.gov/forms-pubs/about-publication-970.
• www.finra.org/investors/saving-college.

Mr. Clancy is director of financial planning, Drexel University College of Medicine.

You are trying to buy your first home. Maybe you have heard stories from family, friends, and colleagues about nightmare scenarios when purchasing a home. There are many facets to the home-financing process, and a little bit of planning can reduce a significant amount of time and stress. Where do you begin? What do lenders look for when preapproving a borrower? What steps do I take to get preapproved for a mortgage loan? This article will help guide you through these initial stages to ultimately guide you to settlement on your new home.

Where to begin?

• Start by drafting a budget. How much of a monthly housing payment can you afford? Planning a budget is an extremely valuable exercise at any point in life, not just when buying a home. Often, borrowers will ask the question “How much can I afford?” The better question to ask is “Can I qualify for a home that meets the maximum monthly payment I have budgeted for?”
• What funds would I use for purchasing a home? Down payments and closing costs can add up quickly. Do you have funds readily available in an account you hold? Will you be obtaining a gift from a family member? Generally, funds for down payment are not allowed to be borrowed, unless the money is coming from an account secured by your own assets (for instance, borrowing from your own retirement account). Don’t think you necessarily need to put 20% down. Some loan programs offer little or no down payment options, while other programs may offer down payment assistance options.
• If you are not aware of your credit standing, run a free credit report to verify accurate information. Federal law allows consumers to access one free credit report annually with each of the three credit bureaus (Equifax, Experian, TransUnion). Knowing your credit history and data on your credit report is very important. If there are known or unknown issues on your credit report, it’s always best to at least be informed. You can access your free report at www.annualcreditreport.com.
• Start planning ahead with some of the documentation you will need for a loan approval. Lenders will request items such as tax returns and W-2s from the past 2 years, your recent pay stubs covering a 30-day period, most recent 2 months asset account statements (bank accounts, investment accounts, retirement accounts, etc.), as well as other documentation, depending on your specific scenario.

What are lenders looking at when preapproving an applicant?

Many people will often start to search for homes without having prepared for the preapproval process. This is not necessarily an issue and it doesn’t mean you will not be preapproved. Planning ahead could help you avoid any unforeseen problems and avoid rushing into the mortgage application process when trying to place an offer on a home.

In addition to supplying information on residence and employment/student history for the past 2 years, there are three primary components to a borrower’s credit portfolio:

1) Debt-to-income ratio: What monthly expenses will show on your credit report (car loans/leases, student loans, credit card payments, personal loans/lines of credit, and mortgages for other properties owned)? Do you own any other real estate? Do you have other required obligations, such as alimony or child support payments? To calculate, first combine these liabilities on a monthly expense basis along with the new proposed monthly housing payment. Take these monthly liabilities and divide by monthly income. Gross income (pretax) for employees of a company they do not own is typically utilized (bonus or commission income can have some alternate rules to be allowed as qualifying income); for self-employed borrowers, tax returns will be required to be reviewed; tax write offs could reduce qualifying income. Self-employed individuals will typically need to show a 2-year income history via personal tax returns (as well as business tax returns if applicable). See Figure 1 for an example of a debt-to-income ratio calculation. Many loan programs will require a debt-to-income ratio of 45% or less. There are various loan programs that will be more or less restrictive than this percentage. A lender will be able to guide you to the proper program for your scenario.

You are now ready to be preapproved for mortgage financing. What should you do next?

• Talk to a trusted lender. Ask your real estate agent, family, friends, or colleagues for local lender recommendations. Real estate agents will want to make sure you have spoken with a lender and completed a preapproval application to ensure that you can be preapproved for financing before showing you homes. If you need a loan to purchase a home, a preapproval letter will be required to submit with an offer letter. The application contains questions such as your address and employment history for the past 2 years, income and asset information, as well as a series of other financial information. A hard credit inquiry will need to be performed in order for the lender to issue a preapproval. What should you expect from a lender in addition to competitive rates and an array of programs? Some people prefer more of a hands-on approach. Working with a lender who provides regular status updates and makes him/herself easily accessible for all of your questions can certainly be an attractive feature. Working with a local lender also may be reassuring, as he or she should have plenty of experience with the market in which you are purchasing.
• Search for homes. Upon being given the green light for your preapproval and a price range within your comfort zone, connect with your local real estate professional to search for homes. Plan to spend time with your agent discussing all your needs for your new home.
• Submit an offer. Your lender will be able to provide an estimate of closing costs and monthly payments for homes that you are considering buying before you make an offer. You will want to be sure you are comfortable with the financial obligation prior to making your offer. With your offer, an initial good faith deposit (earnest money deposit) will be required. Your real estate agent will guide you on the proper amount of the deposit.

Conclusion

Once you and the seller have come to terms, you will look to discuss with your lender the rate and program options to secure (locking in an interest rate and program), as well as to complete the formal mortgage application. The lender will request additional documentation, if you have not already provided documents, in order for you to obtain a conditional mortgage commitment. The lender also will order an appraisal to ensure the property value supports the price you have agreed to pay for it. Your real estate agent will guide you through the various deadlines and requirements in the contract for items like home inspections, ordering a title search to obtain title insurance, and other nonfinancing contingencies. Some areas may require attorneys for contract review and closing, which your agent will discuss with you. As you can see, buying a home is not an instant process. Taking the appropriate steps to prepare for your mortgage preapproval could save you a lot of time and stress.

Mr. Wishnick is a 15-year mortgage industry veteran, vice president of mortgage lending with Guaranteed Rate (NMLS #2611) and was ranked as a Top 1% mortgage originator by Mortgage Executive Magazine. He can be reached at [email protected].

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate does not guarantee the quality, accuracy, completeness or timelines of the information in this publication.

You are trying to buy your first home. Maybe you have heard stories from family, friends, and colleagues about nightmare scenarios when purchasing a home. There are many facets to the home-financing process, and a little bit of planning can reduce a significant amount of time and stress. Where do you begin? What do lenders look for when preapproving a borrower? What steps do I take to get preapproved for a mortgage loan? This article will help guide you through these initial stages to ultimately guide you to settlement on your new home.

Where to begin?

• Start by drafting a budget. How much of a monthly housing payment can you afford? Planning a budget is an extremely valuable exercise at any point in life, not just when buying a home. Often, borrowers will ask the question “How much can I afford?” The better question to ask is “Can I qualify for a home that meets the maximum monthly payment I have budgeted for?”
• What funds would I use for purchasing a home? Down payments and closing costs can add up quickly. Do you have funds readily available in an account you hold? Will you be obtaining a gift from a family member? Generally, funds for down payment are not allowed to be borrowed, unless the money is coming from an account secured by your own assets (for instance, borrowing from your own retirement account). Don’t think you necessarily need to put 20% down. Some loan programs offer little or no down payment options, while other programs may offer down payment assistance options.
• If you are not aware of your credit standing, run a free credit report to verify accurate information. Federal law allows consumers to access one free credit report annually with each of the three credit bureaus (Equifax, Experian, TransUnion). Knowing your credit history and data on your credit report is very important. If there are known or unknown issues on your credit report, it’s always best to at least be informed. You can access your free report at www.annualcreditreport.com.
• Start planning ahead with some of the documentation you will need for a loan approval. Lenders will request items such as tax returns and W-2s from the past 2 years, your recent pay stubs covering a 30-day period, most recent 2 months asset account statements (bank accounts, investment accounts, retirement accounts, etc.), as well as other documentation, depending on your specific scenario.

What are lenders looking at when preapproving an applicant?

Many people will often start to search for homes without having prepared for the preapproval process. This is not necessarily an issue and it doesn’t mean you will not be preapproved. Planning ahead could help you avoid any unforeseen problems and avoid rushing into the mortgage application process when trying to place an offer on a home.

In addition to supplying information on residence and employment/student history for the past 2 years, there are three primary components to a borrower’s credit portfolio:

1) Debt-to-income ratio: What monthly expenses will show on your credit report (car loans/leases, student loans, credit card payments, personal loans/lines of credit, and mortgages for other properties owned)? Do you own any other real estate? Do you have other required obligations, such as alimony or child support payments? To calculate, first combine these liabilities on a monthly expense basis along with the new proposed monthly housing payment. Take these monthly liabilities and divide by monthly income. Gross income (pretax) for employees of a company they do not own is typically utilized (bonus or commission income can have some alternate rules to be allowed as qualifying income); for self-employed borrowers, tax returns will be required to be reviewed; tax write offs could reduce qualifying income. Self-employed individuals will typically need to show a 2-year income history via personal tax returns (as well as business tax returns if applicable). See Figure 1 for an example of a debt-to-income ratio calculation. Many loan programs will require a debt-to-income ratio of 45% or less. There are various loan programs that will be more or less restrictive than this percentage. A lender will be able to guide you to the proper program for your scenario.

You are now ready to be preapproved for mortgage financing. What should you do next?

• Talk to a trusted lender. Ask your real estate agent, family, friends, or colleagues for local lender recommendations. Real estate agents will want to make sure you have spoken with a lender and completed a preapproval application to ensure that you can be preapproved for financing before showing you homes. If you need a loan to purchase a home, a preapproval letter will be required to submit with an offer letter. The application contains questions such as your address and employment history for the past 2 years, income and asset information, as well as a series of other financial information. A hard credit inquiry will need to be performed in order for the lender to issue a preapproval. What should you expect from a lender in addition to competitive rates and an array of programs? Some people prefer more of a hands-on approach. Working with a lender who provides regular status updates and makes him/herself easily accessible for all of your questions can certainly be an attractive feature. Working with a local lender also may be reassuring, as he or she should have plenty of experience with the market in which you are purchasing.
• Search for homes. Upon being given the green light for your preapproval and a price range within your comfort zone, connect with your local real estate professional to search for homes. Plan to spend time with your agent discussing all your needs for your new home.
• Submit an offer. Your lender will be able to provide an estimate of closing costs and monthly payments for homes that you are considering buying before you make an offer. You will want to be sure you are comfortable with the financial obligation prior to making your offer. With your offer, an initial good faith deposit (earnest money deposit) will be required. Your real estate agent will guide you on the proper amount of the deposit.

Conclusion

Once you and the seller have come to terms, you will look to discuss with your lender the rate and program options to secure (locking in an interest rate and program), as well as to complete the formal mortgage application. The lender will request additional documentation, if you have not already provided documents, in order for you to obtain a conditional mortgage commitment. The lender also will order an appraisal to ensure the property value supports the price you have agreed to pay for it. Your real estate agent will guide you through the various deadlines and requirements in the contract for items like home inspections, ordering a title search to obtain title insurance, and other nonfinancing contingencies. Some areas may require attorneys for contract review and closing, which your agent will discuss with you. As you can see, buying a home is not an instant process. Taking the appropriate steps to prepare for your mortgage preapproval could save you a lot of time and stress.

Mr. Wishnick is a 15-year mortgage industry veteran, vice president of mortgage lending with Guaranteed Rate (NMLS #2611) and was ranked as a Top 1% mortgage originator by Mortgage Executive Magazine. He can be reached at [email protected].

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate does not guarantee the quality, accuracy, completeness or timelines of the information in this publication.

You are trying to buy your first home. Maybe you have heard stories from family, friends, and colleagues about nightmare scenarios when purchasing a home. There are many facets to the home-financing process, and a little bit of planning can reduce a significant amount of time and stress. Where do you begin? What do lenders look for when preapproving a borrower? What steps do I take to get preapproved for a mortgage loan? This article will help guide you through these initial stages to ultimately guide you to settlement on your new home.

Where to begin?

• Start by drafting a budget. How much of a monthly housing payment can you afford? Planning a budget is an extremely valuable exercise at any point in life, not just when buying a home. Often, borrowers will ask the question “How much can I afford?” The better question to ask is “Can I qualify for a home that meets the maximum monthly payment I have budgeted for?”
• What funds would I use for purchasing a home? Down payments and closing costs can add up quickly. Do you have funds readily available in an account you hold? Will you be obtaining a gift from a family member? Generally, funds for down payment are not allowed to be borrowed, unless the money is coming from an account secured by your own assets (for instance, borrowing from your own retirement account). Don’t think you necessarily need to put 20% down. Some loan programs offer little or no down payment options, while other programs may offer down payment assistance options.
• If you are not aware of your credit standing, run a free credit report to verify accurate information. Federal law allows consumers to access one free credit report annually with each of the three credit bureaus (Equifax, Experian, TransUnion). Knowing your credit history and data on your credit report is very important. If there are known or unknown issues on your credit report, it’s always best to at least be informed. You can access your free report at www.annualcreditreport.com.
• Start planning ahead with some of the documentation you will need for a loan approval. Lenders will request items such as tax returns and W-2s from the past 2 years, your recent pay stubs covering a 30-day period, most recent 2 months asset account statements (bank accounts, investment accounts, retirement accounts, etc.), as well as other documentation, depending on your specific scenario.

What are lenders looking at when preapproving an applicant?

Many people will often start to search for homes without having prepared for the preapproval process. This is not necessarily an issue and it doesn’t mean you will not be preapproved. Planning ahead could help you avoid any unforeseen problems and avoid rushing into the mortgage application process when trying to place an offer on a home.

In addition to supplying information on residence and employment/student history for the past 2 years, there are three primary components to a borrower’s credit portfolio:

1) Debt-to-income ratio: What monthly expenses will show on your credit report (car loans/leases, student loans, credit card payments, personal loans/lines of credit, and mortgages for other properties owned)? Do you own any other real estate? Do you have other required obligations, such as alimony or child support payments? To calculate, first combine these liabilities on a monthly expense basis along with the new proposed monthly housing payment. Take these monthly liabilities and divide by monthly income. Gross income (pretax) for employees of a company they do not own is typically utilized (bonus or commission income can have some alternate rules to be allowed as qualifying income); for self-employed borrowers, tax returns will be required to be reviewed; tax write offs could reduce qualifying income. Self-employed individuals will typically need to show a 2-year income history via personal tax returns (as well as business tax returns if applicable). See Figure 1 for an example of a debt-to-income ratio calculation. Many loan programs will require a debt-to-income ratio of 45% or less. There are various loan programs that will be more or less restrictive than this percentage. A lender will be able to guide you to the proper program for your scenario.

You are now ready to be preapproved for mortgage financing. What should you do next?

• Talk to a trusted lender. Ask your real estate agent, family, friends, or colleagues for local lender recommendations. Real estate agents will want to make sure you have spoken with a lender and completed a preapproval application to ensure that you can be preapproved for financing before showing you homes. If you need a loan to purchase a home, a preapproval letter will be required to submit with an offer letter. The application contains questions such as your address and employment history for the past 2 years, income and asset information, as well as a series of other financial information. A hard credit inquiry will need to be performed in order for the lender to issue a preapproval. What should you expect from a lender in addition to competitive rates and an array of programs? Some people prefer more of a hands-on approach. Working with a lender who provides regular status updates and makes him/herself easily accessible for all of your questions can certainly be an attractive feature. Working with a local lender also may be reassuring, as he or she should have plenty of experience with the market in which you are purchasing.
• Search for homes. Upon being given the green light for your preapproval and a price range within your comfort zone, connect with your local real estate professional to search for homes. Plan to spend time with your agent discussing all your needs for your new home.
• Submit an offer. Your lender will be able to provide an estimate of closing costs and monthly payments for homes that you are considering buying before you make an offer. You will want to be sure you are comfortable with the financial obligation prior to making your offer. With your offer, an initial good faith deposit (earnest money deposit) will be required. Your real estate agent will guide you on the proper amount of the deposit.

Conclusion

Once you and the seller have come to terms, you will look to discuss with your lender the rate and program options to secure (locking in an interest rate and program), as well as to complete the formal mortgage application. The lender will request additional documentation, if you have not already provided documents, in order for you to obtain a conditional mortgage commitment. The lender also will order an appraisal to ensure the property value supports the price you have agreed to pay for it. Your real estate agent will guide you through the various deadlines and requirements in the contract for items like home inspections, ordering a title search to obtain title insurance, and other nonfinancing contingencies. Some areas may require attorneys for contract review and closing, which your agent will discuss with you. As you can see, buying a home is not an instant process. Taking the appropriate steps to prepare for your mortgage preapproval could save you a lot of time and stress.

Mr. Wishnick is a 15-year mortgage industry veteran, vice president of mortgage lending with Guaranteed Rate (NMLS #2611) and was ranked as a Top 1% mortgage originator by Mortgage Executive Magazine. He can be reached at [email protected].

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate does not guarantee the quality, accuracy, completeness or timelines of the information in this publication.

Approaching the concept of retirement savings is particularly unique for medical professionals: Balancing a tremendously demanding career with family life and personal time allows few to have the luxury of extra time to address financial planning. Many in the field have higher priorities than saving for retirement on their minds, which compounds the issue.

According to the Association of American Medical Colleges, 76% of medical students will have student debt by the time they graduate. Among those students, the average debt is a staggering $190,000. The average American couple has only about $163,000 in savings by the time they are about 60 years old, so coming out of school, the average doctor will have more in debt than most have saved in their lifetimes. This means that many doctors can’t really start saving significantly until the latter half of their careers. With that in mind, consider these tips to help you on your journey to financial security.
 

Pay off debt or start saving for retirement?

When it comes to the decision of investing toward retirement or paying off debt more aggressively, there is really only one question that needs to be answered: “Can I make more investing than the loan is costing me?” Given the fact that Direct Graduate Plus Loans are now sitting at about 7% interest rates, an investment would have to make more than 7% per year to make sense. While we can look back at the historical performance of the stock market over time, it is pretty safe to say that in this scenario paying off the student loans as aggressively as possible is the best choice. The reason being is that the loans have a guaranteed cost of 7% per year in accrued interest, whereas an investment is never fully guaranteed to grow.

Make no mistake: High-interest debt is a financial dead weight; the longer it sits, the more it will attempt to sink you financially. A general rule of thumb is that the higher the interest rate on the loan, the more aggressively it should be paid off. Once the high interest loans are taken care of, saving for retirement can reenter the equation.
 

The company match

That being said, there is one caveat to this rule that you should strongly consider if the opportunity exists: the 401(k) or 403(b) company match. If you work in a position that offers a match on retirement plan contributions, taking advantage of this could substantially benefit you. In a typical safe harbor retirement plan, you will see something like a 3.5% company match for a 6% salary contribution. While there is no one formula that applies to every situation, an opportunity such as this shouldn’t be passed up.

Saving for retirement can be difficult enough. Why not take advantage of a situation in which you are getting free money? You should think about contributing enough to get the maximum match and putting the rest toward student debt. If you are unsure about your particular course of action, I’d suggest speaking to your financial professional to assist in coming up with a suitable game plan.

Roth deferral option

While many folks understand the general ins and outs of how retirement plans work, they fail to realize that there are actually two different types of contributions that can be made in most 401(k)s and 403(b)s: traditional deferrals and Roth deferrals. A traditional deferral is the standard pretax contribution option that lets you skip paying taxes now. Instead, you get taxed at your normal income tax bracket when the money is withdrawn in retirement. This is the option that most people use.

Roth deferrals are posttax contributions. Every dollar contributed gets taxed as ordinary income. Why would one do this, you ask? While there are a variety of different benefits, the primary advantage is that you never have to pay taxes on this money again. To reiterate, you pay taxes on this money now and never have to pay any taxes on it again. This can be extraordinarily helpful in retirement because it gives you the flexibility to choose between taxable and tax-free income.

While you can contribute to personal Roth IRAs to the tune of $5,500 a year if you are under 50 years old and $6,500 if you are 50 years and older, high income earners can be hampered by income limits. For instance, if you make over $135,000 a year as a single person or over $199,000 as a married couple, you are ineligible to make Roth IRA contributions. However, a benefit to Roth contributions in your company 401(k) or 403(b) plan is that these income limits don’t apply. Regardless of your level of income, you can make Roth deferrals in company sponsored retirement plans that allow them.

This strategy is best fit for, but not limited to, those who are earlier on in their careers and can reasonably expect to make much more in the future than they do now. Younger investors have the benefit of time: The more time an investment has to grow, the more it should be worth later on. Also, younger professionals are probably going to be paying the least amount of taxes early in their careers. While not all retirement plans allow for Roth deferrals, if the option is available, why not get taxes out of the way while it’s still relatively cheaper to do so?

AJ Bellamah

More aggressive strategies for those who need to “catch up” on retirement savings

Because many in the medical field have burdensome student loans, saving for retirement is often something that is pushed off by necessity. That being said, there are different ways to start saving more aggressively the closer you get toward retirement.

Catch up contributions. 401(k)s, 403(b)s, and IRAs all have built in “catch up” contributions that allow those aged 50 or older to save more. For instance, up to age 49 years, the maximum annual contribution in a 401(k) or 403(b) is $18,500 for 2018. At age 50 years, you are allowed to add an additional $6000 “catch up” contribution for a total of $24,500 per year. Likewise, IRAs allow for an additional $1000 per year contribution at age 50 years for a $6500 total yearly contribution.

Spousal IRAs. If you have a nonworking spouse, you may be able to contribute to an IRA on his or her behalf. To be eligible for a spousal IRA contribution, you must be married, file a joint income tax return, and have an earned income of at least what is being contributed to the IRAs. This would allow an additional $5,500 to $6,500 in retirement savings per year depending on your spouse’s age.

Simplified Employee Pension IRAs. For those who are self-employed, it could be worthwhile to look into opening up a Simplified Employee Pension (SEP) IRA. These types of retirement plans are similar to traditional IRAs except that they can only be opened up by an employer. The benefit of a SEP IRA is that it allows for a maximum pretax contribution of up to $54,000 or 25% of your total income, whichever is less.

Cash balance plans. For very-high-earning business owners or sole proprietors, saving $24,500 a year pretax in a 401(k) isn’t necessarily going to move the needle all that much. However, there is a plan available that may help tremendously. The cash balance plan is a little known hybrid retirement plan that allows high-earning practices and business owners to put away a serious amount of money in a short amount of time. For instance, an optimally set up cash balance plan would allow a 59 year old to save up to $278,000 in qualified pretax dollars in a single year. Undoubtedly, such plans are one of the most effective and efficient ways to save money for retirement for those who qualify.

Check out the maximum contributions limits of some retirement strategies below based on your age group.

Mr. Bellamah is a registered investment advisor with BNB Wealth Management http://www.bnbinc.com/.

Approaching the concept of retirement savings is particularly unique for medical professionals: Balancing a tremendously demanding career with family life and personal time allows few to have the luxury of extra time to address financial planning. Many in the field have higher priorities than saving for retirement on their minds, which compounds the issue.

According to the Association of American Medical Colleges, 76% of medical students will have student debt by the time they graduate. Among those students, the average debt is a staggering $190,000. The average American couple has only about $163,000 in savings by the time they are about 60 years old, so coming out of school, the average doctor will have more in debt than most have saved in their lifetimes. This means that many doctors can’t really start saving significantly until the latter half of their careers. With that in mind, consider these tips to help you on your journey to financial security.
 

Pay off debt or start saving for retirement?

When it comes to the decision of investing toward retirement or paying off debt more aggressively, there is really only one question that needs to be answered: “Can I make more investing than the loan is costing me?” Given the fact that Direct Graduate Plus Loans are now sitting at about 7% interest rates, an investment would have to make more than 7% per year to make sense. While we can look back at the historical performance of the stock market over time, it is pretty safe to say that in this scenario paying off the student loans as aggressively as possible is the best choice. The reason being is that the loans have a guaranteed cost of 7% per year in accrued interest, whereas an investment is never fully guaranteed to grow.

Make no mistake: High-interest debt is a financial dead weight; the longer it sits, the more it will attempt to sink you financially. A general rule of thumb is that the higher the interest rate on the loan, the more aggressively it should be paid off. Once the high interest loans are taken care of, saving for retirement can reenter the equation.
 

The company match

That being said, there is one caveat to this rule that you should strongly consider if the opportunity exists: the 401(k) or 403(b) company match. If you work in a position that offers a match on retirement plan contributions, taking advantage of this could substantially benefit you. In a typical safe harbor retirement plan, you will see something like a 3.5% company match for a 6% salary contribution. While there is no one formula that applies to every situation, an opportunity such as this shouldn’t be passed up.

Saving for retirement can be difficult enough. Why not take advantage of a situation in which you are getting free money? You should think about contributing enough to get the maximum match and putting the rest toward student debt. If you are unsure about your particular course of action, I’d suggest speaking to your financial professional to assist in coming up with a suitable game plan.

Roth deferral option

While many folks understand the general ins and outs of how retirement plans work, they fail to realize that there are actually two different types of contributions that can be made in most 401(k)s and 403(b)s: traditional deferrals and Roth deferrals. A traditional deferral is the standard pretax contribution option that lets you skip paying taxes now. Instead, you get taxed at your normal income tax bracket when the money is withdrawn in retirement. This is the option that most people use.

Roth deferrals are posttax contributions. Every dollar contributed gets taxed as ordinary income. Why would one do this, you ask? While there are a variety of different benefits, the primary advantage is that you never have to pay taxes on this money again. To reiterate, you pay taxes on this money now and never have to pay any taxes on it again. This can be extraordinarily helpful in retirement because it gives you the flexibility to choose between taxable and tax-free income.

While you can contribute to personal Roth IRAs to the tune of $5,500 a year if you are under 50 years old and $6,500 if you are 50 years and older, high income earners can be hampered by income limits. For instance, if you make over $135,000 a year as a single person or over $199,000 as a married couple, you are ineligible to make Roth IRA contributions. However, a benefit to Roth contributions in your company 401(k) or 403(b) plan is that these income limits don’t apply. Regardless of your level of income, you can make Roth deferrals in company sponsored retirement plans that allow them.

This strategy is best fit for, but not limited to, those who are earlier on in their careers and can reasonably expect to make much more in the future than they do now. Younger investors have the benefit of time: The more time an investment has to grow, the more it should be worth later on. Also, younger professionals are probably going to be paying the least amount of taxes early in their careers. While not all retirement plans allow for Roth deferrals, if the option is available, why not get taxes out of the way while it’s still relatively cheaper to do so?

AJ Bellamah

More aggressive strategies for those who need to “catch up” on retirement savings

Because many in the medical field have burdensome student loans, saving for retirement is often something that is pushed off by necessity. That being said, there are different ways to start saving more aggressively the closer you get toward retirement.

Catch up contributions. 401(k)s, 403(b)s, and IRAs all have built in “catch up” contributions that allow those aged 50 or older to save more. For instance, up to age 49 years, the maximum annual contribution in a 401(k) or 403(b) is $18,500 for 2018. At age 50 years, you are allowed to add an additional $6000 “catch up” contribution for a total of $24,500 per year. Likewise, IRAs allow for an additional $1000 per year contribution at age 50 years for a $6500 total yearly contribution.

Spousal IRAs. If you have a nonworking spouse, you may be able to contribute to an IRA on his or her behalf. To be eligible for a spousal IRA contribution, you must be married, file a joint income tax return, and have an earned income of at least what is being contributed to the IRAs. This would allow an additional $5,500 to $6,500 in retirement savings per year depending on your spouse’s age.

Simplified Employee Pension IRAs. For those who are self-employed, it could be worthwhile to look into opening up a Simplified Employee Pension (SEP) IRA. These types of retirement plans are similar to traditional IRAs except that they can only be opened up by an employer. The benefit of a SEP IRA is that it allows for a maximum pretax contribution of up to $54,000 or 25% of your total income, whichever is less.

Cash balance plans. For very-high-earning business owners or sole proprietors, saving $24,500 a year pretax in a 401(k) isn’t necessarily going to move the needle all that much. However, there is a plan available that may help tremendously. The cash balance plan is a little known hybrid retirement plan that allows high-earning practices and business owners to put away a serious amount of money in a short amount of time. For instance, an optimally set up cash balance plan would allow a 59 year old to save up to $278,000 in qualified pretax dollars in a single year. Undoubtedly, such plans are one of the most effective and efficient ways to save money for retirement for those who qualify.

Check out the maximum contributions limits of some retirement strategies below based on your age group.

Mr. Bellamah is a registered investment advisor with BNB Wealth Management http://www.bnbinc.com/.

Approaching the concept of retirement savings is particularly unique for medical professionals: Balancing a tremendously demanding career with family life and personal time allows few to have the luxury of extra time to address financial planning. Many in the field have higher priorities than saving for retirement on their minds, which compounds the issue.

According to the Association of American Medical Colleges, 76% of medical students will have student debt by the time they graduate. Among those students, the average debt is a staggering $190,000. The average American couple has only about $163,000 in savings by the time they are about 60 years old, so coming out of school, the average doctor will have more in debt than most have saved in their lifetimes. This means that many doctors can’t really start saving significantly until the latter half of their careers. With that in mind, consider these tips to help you on your journey to financial security.
 

Pay off debt or start saving for retirement?

When it comes to the decision of investing toward retirement or paying off debt more aggressively, there is really only one question that needs to be answered: “Can I make more investing than the loan is costing me?” Given the fact that Direct Graduate Plus Loans are now sitting at about 7% interest rates, an investment would have to make more than 7% per year to make sense. While we can look back at the historical performance of the stock market over time, it is pretty safe to say that in this scenario paying off the student loans as aggressively as possible is the best choice. The reason being is that the loans have a guaranteed cost of 7% per year in accrued interest, whereas an investment is never fully guaranteed to grow.

Make no mistake: High-interest debt is a financial dead weight; the longer it sits, the more it will attempt to sink you financially. A general rule of thumb is that the higher the interest rate on the loan, the more aggressively it should be paid off. Once the high interest loans are taken care of, saving for retirement can reenter the equation.
 

The company match

That being said, there is one caveat to this rule that you should strongly consider if the opportunity exists: the 401(k) or 403(b) company match. If you work in a position that offers a match on retirement plan contributions, taking advantage of this could substantially benefit you. In a typical safe harbor retirement plan, you will see something like a 3.5% company match for a 6% salary contribution. While there is no one formula that applies to every situation, an opportunity such as this shouldn’t be passed up.

Saving for retirement can be difficult enough. Why not take advantage of a situation in which you are getting free money? You should think about contributing enough to get the maximum match and putting the rest toward student debt. If you are unsure about your particular course of action, I’d suggest speaking to your financial professional to assist in coming up with a suitable game plan.

Roth deferral option

While many folks understand the general ins and outs of how retirement plans work, they fail to realize that there are actually two different types of contributions that can be made in most 401(k)s and 403(b)s: traditional deferrals and Roth deferrals. A traditional deferral is the standard pretax contribution option that lets you skip paying taxes now. Instead, you get taxed at your normal income tax bracket when the money is withdrawn in retirement. This is the option that most people use.

Roth deferrals are posttax contributions. Every dollar contributed gets taxed as ordinary income. Why would one do this, you ask? While there are a variety of different benefits, the primary advantage is that you never have to pay taxes on this money again. To reiterate, you pay taxes on this money now and never have to pay any taxes on it again. This can be extraordinarily helpful in retirement because it gives you the flexibility to choose between taxable and tax-free income.

While you can contribute to personal Roth IRAs to the tune of $5,500 a year if you are under 50 years old and $6,500 if you are 50 years and older, high income earners can be hampered by income limits. For instance, if you make over $135,000 a year as a single person or over $199,000 as a married couple, you are ineligible to make Roth IRA contributions. However, a benefit to Roth contributions in your company 401(k) or 403(b) plan is that these income limits don’t apply. Regardless of your level of income, you can make Roth deferrals in company sponsored retirement plans that allow them.

This strategy is best fit for, but not limited to, those who are earlier on in their careers and can reasonably expect to make much more in the future than they do now. Younger investors have the benefit of time: The more time an investment has to grow, the more it should be worth later on. Also, younger professionals are probably going to be paying the least amount of taxes early in their careers. While not all retirement plans allow for Roth deferrals, if the option is available, why not get taxes out of the way while it’s still relatively cheaper to do so?

AJ Bellamah

More aggressive strategies for those who need to “catch up” on retirement savings

Because many in the medical field have burdensome student loans, saving for retirement is often something that is pushed off by necessity. That being said, there are different ways to start saving more aggressively the closer you get toward retirement.

Catch up contributions. 401(k)s, 403(b)s, and IRAs all have built in “catch up” contributions that allow those aged 50 or older to save more. For instance, up to age 49 years, the maximum annual contribution in a 401(k) or 403(b) is $18,500 for 2018. At age 50 years, you are allowed to add an additional $6000 “catch up” contribution for a total of $24,500 per year. Likewise, IRAs allow for an additional $1000 per year contribution at age 50 years for a $6500 total yearly contribution.

Spousal IRAs. If you have a nonworking spouse, you may be able to contribute to an IRA on his or her behalf. To be eligible for a spousal IRA contribution, you must be married, file a joint income tax return, and have an earned income of at least what is being contributed to the IRAs. This would allow an additional $5,500 to $6,500 in retirement savings per year depending on your spouse’s age.

Simplified Employee Pension IRAs. For those who are self-employed, it could be worthwhile to look into opening up a Simplified Employee Pension (SEP) IRA. These types of retirement plans are similar to traditional IRAs except that they can only be opened up by an employer. The benefit of a SEP IRA is that it allows for a maximum pretax contribution of up to $54,000 or 25% of your total income, whichever is less.

Cash balance plans. For very-high-earning business owners or sole proprietors, saving $24,500 a year pretax in a 401(k) isn’t necessarily going to move the needle all that much. However, there is a plan available that may help tremendously. The cash balance plan is a little known hybrid retirement plan that allows high-earning practices and business owners to put away a serious amount of money in a short amount of time. For instance, an optimally set up cash balance plan would allow a 59 year old to save up to $278,000 in qualified pretax dollars in a single year. Undoubtedly, such plans are one of the most effective and efficient ways to save money for retirement for those who qualify.

Check out the maximum contributions limits of some retirement strategies below based on your age group.

Mr. Bellamah is a registered investment advisor with BNB Wealth Management http://www.bnbinc.com/.

In the previous issue of The New Gastroenterologist, we discussed statistics and the basis on which most gastroenterologists are sued as well as what you can do to minimize this risk. In this second article, we discuss steps to assist in your defense in the event you have been sued. The following suggestions are based on our experience as defense attorneys who practice in the arena of medical malpractice.

Your deposition

At some point during the lawsuit, the plaintiff’s attorney will take your deposition. The plaintiff’s attorney will strive to obtain concessions that establish the standard of care, breach of the standard, causation, and damages. Your deposition is not the time for you to provide explanations. It is the time for you to concisely answer specific questions posed by counsel without volunteering any additional information. Ultimately, trials build on what occurs during depositions. Preparation is key. Be open to advice or criticisms from your lawyer. Try to eliminate any quirks or habits that interfere with the substance of your testimony or perceived credibility. A deposition is not a casual conversation, nor is it a test of your memory. Limit your answers to personal knowledge; never guess or speculate. If you do not know the answer to a question, or do not remember something, it is perfectly acceptable for you to say so. Only answer questions that you understand. You are allowed to ask the plaintiff’s counsel to repeat or rephrase questions.

Preparing for trial

Conclusion

In summary, remember that there are things you can do both before and after you are sued to minimize litigation and its impact. As mentioned previously, before a lawsuit, and as a regular part of your practice, it is important that you stay current with medical advances, that you take the time to create a relationship with your patients involving quality communication, and that you thoroughly and legibly document all aspects of care provided. After a suit is filed against you, make sure you notify your insurer immediately, do not alter any records or discuss the case with anyone other than your lawyer or spouse, and do all you can to create a productive and honest relationship with your lawyer. This relationship will be invaluable as you do the difficult and time-consuming work of preparing for your deposition and trial, and it can help you endure and successfully navigate the litigation process.

The Importance of Follow-Up: Further Advice on How to Decrease the Risk of Being Sued

A common basis for establishing a malpractice liability claim against a physician is the failure to follow-up or track a patient’s test results. In today’s world, there is an increasing number of moving parts involved in any given patient’s care. A particular patient may treat with numerous physicians, all of whom use different record systems. Electronic medical record systems have made records more accessible and easier to track, but they also present a new set of challenges.

Every physician needs to determine how they plan to track test results. The ideal system would allow a physician to quickly get back any lab or diagnostic test that he or she orders. All staff members should know how the physician’s system works. Otherwise, test results might accidentally be filed before the physician reviews them or a miscommunication could prevent test results from being delivered. Whatever choice of system, it is key to follow and effectively use the program every time.

Additionally, it can be beneficial to let the patient know when he or she can expect to hear about their results, as failure to keep the patient reasonably informed can create a new set of patient concerns and anxiety. Ultimately, establishing a well-defined system for record-tracking can help physicians avoid malpractice liability claims because of a failure to follow-up.

In the previous issue of The New Gastroenterologist, we discussed statistics and the basis on which most gastroenterologists are sued as well as what you can do to minimize this risk. In this second article, we discuss steps to assist in your defense in the event you have been sued. The following suggestions are based on our experience as defense attorneys who practice in the arena of medical malpractice.

Your deposition

At some point during the lawsuit, the plaintiff’s attorney will take your deposition. The plaintiff’s attorney will strive to obtain concessions that establish the standard of care, breach of the standard, causation, and damages. Your deposition is not the time for you to provide explanations. It is the time for you to concisely answer specific questions posed by counsel without volunteering any additional information. Ultimately, trials build on what occurs during depositions. Preparation is key. Be open to advice or criticisms from your lawyer. Try to eliminate any quirks or habits that interfere with the substance of your testimony or perceived credibility. A deposition is not a casual conversation, nor is it a test of your memory. Limit your answers to personal knowledge; never guess or speculate. If you do not know the answer to a question, or do not remember something, it is perfectly acceptable for you to say so. Only answer questions that you understand. You are allowed to ask the plaintiff’s counsel to repeat or rephrase questions.

Preparing for trial

Conclusion

In summary, remember that there are things you can do both before and after you are sued to minimize litigation and its impact. As mentioned previously, before a lawsuit, and as a regular part of your practice, it is important that you stay current with medical advances, that you take the time to create a relationship with your patients involving quality communication, and that you thoroughly and legibly document all aspects of care provided. After a suit is filed against you, make sure you notify your insurer immediately, do not alter any records or discuss the case with anyone other than your lawyer or spouse, and do all you can to create a productive and honest relationship with your lawyer. This relationship will be invaluable as you do the difficult and time-consuming work of preparing for your deposition and trial, and it can help you endure and successfully navigate the litigation process.

The Importance of Follow-Up: Further Advice on How to Decrease the Risk of Being Sued

A common basis for establishing a malpractice liability claim against a physician is the failure to follow-up or track a patient’s test results. In today’s world, there is an increasing number of moving parts involved in any given patient’s care. A particular patient may treat with numerous physicians, all of whom use different record systems. Electronic medical record systems have made records more accessible and easier to track, but they also present a new set of challenges.

Every physician needs to determine how they plan to track test results. The ideal system would allow a physician to quickly get back any lab or diagnostic test that he or she orders. All staff members should know how the physician’s system works. Otherwise, test results might accidentally be filed before the physician reviews them or a miscommunication could prevent test results from being delivered. Whatever choice of system, it is key to follow and effectively use the program every time.

Additionally, it can be beneficial to let the patient know when he or she can expect to hear about their results, as failure to keep the patient reasonably informed can create a new set of patient concerns and anxiety. Ultimately, establishing a well-defined system for record-tracking can help physicians avoid malpractice liability claims because of a failure to follow-up.

In the previous issue of The New Gastroenterologist, we discussed statistics and the basis on which most gastroenterologists are sued as well as what you can do to minimize this risk. In this second article, we discuss steps to assist in your defense in the event you have been sued. The following suggestions are based on our experience as defense attorneys who practice in the arena of medical malpractice.

Your deposition

At some point during the lawsuit, the plaintiff’s attorney will take your deposition. The plaintiff’s attorney will strive to obtain concessions that establish the standard of care, breach of the standard, causation, and damages. Your deposition is not the time for you to provide explanations. It is the time for you to concisely answer specific questions posed by counsel without volunteering any additional information. Ultimately, trials build on what occurs during depositions. Preparation is key. Be open to advice or criticisms from your lawyer. Try to eliminate any quirks or habits that interfere with the substance of your testimony or perceived credibility. A deposition is not a casual conversation, nor is it a test of your memory. Limit your answers to personal knowledge; never guess or speculate. If you do not know the answer to a question, or do not remember something, it is perfectly acceptable for you to say so. Only answer questions that you understand. You are allowed to ask the plaintiff’s counsel to repeat or rephrase questions.

Preparing for trial

Conclusion

In summary, remember that there are things you can do both before and after you are sued to minimize litigation and its impact. As mentioned previously, before a lawsuit, and as a regular part of your practice, it is important that you stay current with medical advances, that you take the time to create a relationship with your patients involving quality communication, and that you thoroughly and legibly document all aspects of care provided. After a suit is filed against you, make sure you notify your insurer immediately, do not alter any records or discuss the case with anyone other than your lawyer or spouse, and do all you can to create a productive and honest relationship with your lawyer. This relationship will be invaluable as you do the difficult and time-consuming work of preparing for your deposition and trial, and it can help you endure and successfully navigate the litigation process.

The Importance of Follow-Up: Further Advice on How to Decrease the Risk of Being Sued

A common basis for establishing a malpractice liability claim against a physician is the failure to follow-up or track a patient’s test results. In today’s world, there is an increasing number of moving parts involved in any given patient’s care. A particular patient may treat with numerous physicians, all of whom use different record systems. Electronic medical record systems have made records more accessible and easier to track, but they also present a new set of challenges.

Every physician needs to determine how they plan to track test results. The ideal system would allow a physician to quickly get back any lab or diagnostic test that he or she orders. All staff members should know how the physician’s system works. Otherwise, test results might accidentally be filed before the physician reviews them or a miscommunication could prevent test results from being delivered. Whatever choice of system, it is key to follow and effectively use the program every time.

Additionally, it can be beneficial to let the patient know when he or she can expect to hear about their results, as failure to keep the patient reasonably informed can create a new set of patient concerns and anxiety. Ultimately, establishing a well-defined system for record-tracking can help physicians avoid malpractice liability claims because of a failure to follow-up.

As a contract and tax attorney for physicians for over 30 years, I have reviewed many asset summaries of late-career physicians. Although most have historically strong annual incomes of $200,000 to $400,000, accumulated wealth varies tremendously. Some physicians in their 60s have a home, a small retirement plan, and little else. Others have cash equivalents of $5,000,000 or more, no debt, real estate, and other assets. In my experience, this variance usually does not relate primarily to income differences but rather spending control and financial knowledge. If you are interested in having the opportunity to retire and not worry about finding an “early bird” special at your favorite restaurant, this article provides ten tips to help you achieve that dream.

Mr. Schiller is a physician contract and tax attorney and has practiced in Norristown, Penn. for the past 30 years. He can be contacted at 610-277-5900 or www.schillerlawassociates.com or [email protected].

As a contract and tax attorney for physicians for over 30 years, I have reviewed many asset summaries of late-career physicians. Although most have historically strong annual incomes of $200,000 to $400,000, accumulated wealth varies tremendously. Some physicians in their 60s have a home, a small retirement plan, and little else. Others have cash equivalents of $5,000,000 or more, no debt, real estate, and other assets. In my experience, this variance usually does not relate primarily to income differences but rather spending control and financial knowledge. If you are interested in having the opportunity to retire and not worry about finding an “early bird” special at your favorite restaurant, this article provides ten tips to help you achieve that dream.

Mr. Schiller is a physician contract and tax attorney and has practiced in Norristown, Penn. for the past 30 years. He can be contacted at 610-277-5900 or www.schillerlawassociates.com or [email protected].

As a contract and tax attorney for physicians for over 30 years, I have reviewed many asset summaries of late-career physicians. Although most have historically strong annual incomes of $200,000 to $400,000, accumulated wealth varies tremendously. Some physicians in their 60s have a home, a small retirement plan, and little else. Others have cash equivalents of $5,000,000 or more, no debt, real estate, and other assets. In my experience, this variance usually does not relate primarily to income differences but rather spending control and financial knowledge. If you are interested in having the opportunity to retire and not worry about finding an “early bird” special at your favorite restaurant, this article provides ten tips to help you achieve that dream.

Mr. Schiller is a physician contract and tax attorney and has practiced in Norristown, Penn. for the past 30 years. He can be contacted at 610-277-5900 or www.schillerlawassociates.com or [email protected].

The AGA recently partnered with CommonBond (studentloans.gastro.org) to help its members save thousands by refinancing their student loans. Kevin Tin, MD, who is an AGA member, has a student loan story that can certainly offer guidance and perspective to others. Kevin earned his B.S. in health sciences from Stony Brook University and his M.D. from American University of Antigua. He completed his residency at Maimonides Medical Center in Brooklyn, N.Y., where he is currently a gastroenterology fellow.

How was your medical school experience?

My medical school experience was memorable for many reasons, particularly because I had an opportunity to study in Antigua. My time there allowed me to experience a different culture and, ultimately, a different perspective. I believe this taught me how to relate to each of my patients’ individual situations and to see things from their eyes. But, the overall cost of medical school (i.e., tuition, cost of living, medical supplies, and study resources) caught me off guard. By the time I graduated, I had amassed more than $200,000 in student loans; this was not something that I felt prepared to deal with.

How would you describe your initial experience with student loans?

BrianAJackson/Thinkstock

What strategies have you implemented to pay off your student loans?

I’ve learned a few crucial strategies that any physician could, and should, take advantage of to save money on their student loans. First, be sure to spend responsibly while in medical school. I focused on finding free study resources and medical supplies as well as sharing materials with friends and roommates whenever possible. As I mentioned earlier, make small payments when you can; as soon as I entered residency, I started making interest payments on my loans. I wanted to contribute as much as I could, as early as I could, to get out of debt. Second, after graduation, endeavor to live frugally. Although I knew my salary would ultimately increase, I saved as much money as I could and put money toward paying off my loans. Finally, try to refinance your student loans; I refinanced mine with CommonBond. It was an unexpectedly pleasant experience: the website was extremely easy to navigate and any time I needed help, a representative was available to answer my questions. CommonBond also gave me the best rates I could find.
 

What were the benefits of refinancing your student loans?

What is your advice to early-career GIs who have or need to take out loans?

Do your research and do it early. While in medical school, understand what options are available to you and learn to live within your means. In your residency, plan to use a portion of your salary for paying off your student loans, even if it is only a small amount each month. This will reduce the volume of interest that will capitalize, so your loan balance doesn’t grow over time. When you start your full-time job, be financially responsible and limit your spending so you can devote additional funds to paying off your student loans.

If you would like to learn more about student loan refinancing with CommonBond, please visit studentloans.gastro.org. AGA members get a $200 cash bonus for refinancing!
 

Ms. Duggal is vice president of marketing for CommonBond.

The AGA recently partnered with CommonBond (studentloans.gastro.org) to help its members save thousands by refinancing their student loans. Kevin Tin, MD, who is an AGA member, has a student loan story that can certainly offer guidance and perspective to others. Kevin earned his B.S. in health sciences from Stony Brook University and his M.D. from American University of Antigua. He completed his residency at Maimonides Medical Center in Brooklyn, N.Y., where he is currently a gastroenterology fellow.

How was your medical school experience?

My medical school experience was memorable for many reasons, particularly because I had an opportunity to study in Antigua. My time there allowed me to experience a different culture and, ultimately, a different perspective. I believe this taught me how to relate to each of my patients’ individual situations and to see things from their eyes. But, the overall cost of medical school (i.e., tuition, cost of living, medical supplies, and study resources) caught me off guard. By the time I graduated, I had amassed more than $200,000 in student loans; this was not something that I felt prepared to deal with.

How would you describe your initial experience with student loans?

BrianAJackson/Thinkstock

What strategies have you implemented to pay off your student loans?

I’ve learned a few crucial strategies that any physician could, and should, take advantage of to save money on their student loans. First, be sure to spend responsibly while in medical school. I focused on finding free study resources and medical supplies as well as sharing materials with friends and roommates whenever possible. As I mentioned earlier, make small payments when you can; as soon as I entered residency, I started making interest payments on my loans. I wanted to contribute as much as I could, as early as I could, to get out of debt. Second, after graduation, endeavor to live frugally. Although I knew my salary would ultimately increase, I saved as much money as I could and put money toward paying off my loans. Finally, try to refinance your student loans; I refinanced mine with CommonBond. It was an unexpectedly pleasant experience: the website was extremely easy to navigate and any time I needed help, a representative was available to answer my questions. CommonBond also gave me the best rates I could find.
 

What were the benefits of refinancing your student loans?

What is your advice to early-career GIs who have or need to take out loans?

Do your research and do it early. While in medical school, understand what options are available to you and learn to live within your means. In your residency, plan to use a portion of your salary for paying off your student loans, even if it is only a small amount each month. This will reduce the volume of interest that will capitalize, so your loan balance doesn’t grow over time. When you start your full-time job, be financially responsible and limit your spending so you can devote additional funds to paying off your student loans.

If you would like to learn more about student loan refinancing with CommonBond, please visit studentloans.gastro.org. AGA members get a $200 cash bonus for refinancing!
 

Ms. Duggal is vice president of marketing for CommonBond.

The AGA recently partnered with CommonBond (studentloans.gastro.org) to help its members save thousands by refinancing their student loans. Kevin Tin, MD, who is an AGA member, has a student loan story that can certainly offer guidance and perspective to others. Kevin earned his B.S. in health sciences from Stony Brook University and his M.D. from American University of Antigua. He completed his residency at Maimonides Medical Center in Brooklyn, N.Y., where he is currently a gastroenterology fellow.

How was your medical school experience?

My medical school experience was memorable for many reasons, particularly because I had an opportunity to study in Antigua. My time there allowed me to experience a different culture and, ultimately, a different perspective. I believe this taught me how to relate to each of my patients’ individual situations and to see things from their eyes. But, the overall cost of medical school (i.e., tuition, cost of living, medical supplies, and study resources) caught me off guard. By the time I graduated, I had amassed more than $200,000 in student loans; this was not something that I felt prepared to deal with.

How would you describe your initial experience with student loans?

BrianAJackson/Thinkstock

What strategies have you implemented to pay off your student loans?

I’ve learned a few crucial strategies that any physician could, and should, take advantage of to save money on their student loans. First, be sure to spend responsibly while in medical school. I focused on finding free study resources and medical supplies as well as sharing materials with friends and roommates whenever possible. As I mentioned earlier, make small payments when you can; as soon as I entered residency, I started making interest payments on my loans. I wanted to contribute as much as I could, as early as I could, to get out of debt. Second, after graduation, endeavor to live frugally. Although I knew my salary would ultimately increase, I saved as much money as I could and put money toward paying off my loans. Finally, try to refinance your student loans; I refinanced mine with CommonBond. It was an unexpectedly pleasant experience: the website was extremely easy to navigate and any time I needed help, a representative was available to answer my questions. CommonBond also gave me the best rates I could find.
 

What were the benefits of refinancing your student loans?

What is your advice to early-career GIs who have or need to take out loans?

Do your research and do it early. While in medical school, understand what options are available to you and learn to live within your means. In your residency, plan to use a portion of your salary for paying off your student loans, even if it is only a small amount each month. This will reduce the volume of interest that will capitalize, so your loan balance doesn’t grow over time. When you start your full-time job, be financially responsible and limit your spending so you can devote additional funds to paying off your student loans.

If you would like to learn more about student loan refinancing with CommonBond, please visit studentloans.gastro.org. AGA members get a $200 cash bonus for refinancing!
 

Ms. Duggal is vice president of marketing for CommonBond.

An unfortunate fact for many physicians practicing in the United States is that they will contend with medical malpractice suits at some point in their careers. While data specific to gastroenterology malpractice claims is difficult to find,¹ the Physician Insurers Association of America has reported that out of the 28 specialty fields of medicine analyzed from 1985 to 2004, gastroenterology ranked 21st in the number of claims reported², representing about 2% of the total overall number of claims.

JAMA

Professional liability

Patients can allege or establish malpractice liability against a doctor based on a number of things; we will discuss a few of the most common types of liability, offer suggestions as to how you might minimize your risk of being sued, and how best to cope when you are sued.

Negligence: One of the most common theories you may be sued under is negligence. To state a negligence claim against a physician, a plaintiff must show that the doctor owed the patient a duty recognized by law, that the physician breached that duty, that the alleged breach resulted in injury to the patient, and that the patient sustained legally recognized damages as a result. In a lawsuit brought on the basis of claimed medical negligence, a patient claims that a physician, in the course of rendering treatment, failed to meet the applicable standard of care.

Contractual liability of doctor to patient: Physicians and patients can enter into express written contracts regarding the care provided. These contracts can include various treatment plans, the likelihood of success, and even the physician’s promise to cure. Traditionally, courts have respected a physician’s freedom to contract as he or she chooses. However, once a contract is formed, a plaintiff may have a cause of action for breach of contract if the outcome of the treatment is not what was promised.
 

Minimizing risk

Another opportunity to decrease your chances of being sued is to keep informed about recent developments in your field. Make a point to read pertinent literature, attend seminars, and do whatever is necessary to stay aware of, and to incorporate into your practice, current methods of treatment and diagnosis.

Physicians should also be cognizant of contractual liability. When discussing treatment, never guarantee results. Additionally, once a physician-patient relationship is established, you cannot withdraw from the relationship without providing adequate notice to the patient in time to obtain alternative care. Terminating the relationship without such is called abandonment, and can result in professional discipline and civil liability.

Conclusion

Before a lawsuit, and as a regular part of your practice, it is important that you thoroughly and legibly document all aspects of care provided, stay current with medical advances, and take the time to create a relationship with your patients involving quality communication. It is impossible for us to provide you with enough information to adequately prepare you for the day on which you may be sued. We nevertheless hope that following the aforementioned suggestions will be of some help.

References

1. Medical Malpractice Claims and Risk Management in Gastroenterology and Gastrointestinal Endoscopy. American Society for Gastrointestinal Endoscopy, 2017. <www.asge.org>.

2. Physician Insurers Association of America. PIAA Claim Trend Analysis: Gastroenterology, iv. Lawrenceville, N.J.: PIAA, 2004. <http://www.piaa.us>.

3. Kane C., Policy Research Perspective: Medical Liability Claim Frequency: 2007-2008 Snapshot of Physicians, American Medical Association, 2010.

4. Schaffer A.C., et al. JAMA Internal Med. 2017;177(5):710-8.

5. Dodge A.M. Wilsonville, Ore. Book Partners, Inc. 2001.

An unfortunate fact for many physicians practicing in the United States is that they will contend with medical malpractice suits at some point in their careers. While data specific to gastroenterology malpractice claims is difficult to find,¹ the Physician Insurers Association of America has reported that out of the 28 specialty fields of medicine analyzed from 1985 to 2004, gastroenterology ranked 21st in the number of claims reported², representing about 2% of the total overall number of claims.

JAMA

Professional liability

Patients can allege or establish malpractice liability against a doctor based on a number of things; we will discuss a few of the most common types of liability, offer suggestions as to how you might minimize your risk of being sued, and how best to cope when you are sued.

Negligence: One of the most common theories you may be sued under is negligence. To state a negligence claim against a physician, a plaintiff must show that the doctor owed the patient a duty recognized by law, that the physician breached that duty, that the alleged breach resulted in injury to the patient, and that the patient sustained legally recognized damages as a result. In a lawsuit brought on the basis of claimed medical negligence, a patient claims that a physician, in the course of rendering treatment, failed to meet the applicable standard of care.

Contractual liability of doctor to patient: Physicians and patients can enter into express written contracts regarding the care provided. These contracts can include various treatment plans, the likelihood of success, and even the physician’s promise to cure. Traditionally, courts have respected a physician’s freedom to contract as he or she chooses. However, once a contract is formed, a plaintiff may have a cause of action for breach of contract if the outcome of the treatment is not what was promised.
 

Minimizing risk

Another opportunity to decrease your chances of being sued is to keep informed about recent developments in your field. Make a point to read pertinent literature, attend seminars, and do whatever is necessary to stay aware of, and to incorporate into your practice, current methods of treatment and diagnosis.

Physicians should also be cognizant of contractual liability. When discussing treatment, never guarantee results. Additionally, once a physician-patient relationship is established, you cannot withdraw from the relationship without providing adequate notice to the patient in time to obtain alternative care. Terminating the relationship without such is called abandonment, and can result in professional discipline and civil liability.

Conclusion

Before a lawsuit, and as a regular part of your practice, it is important that you thoroughly and legibly document all aspects of care provided, stay current with medical advances, and take the time to create a relationship with your patients involving quality communication. It is impossible for us to provide you with enough information to adequately prepare you for the day on which you may be sued. We nevertheless hope that following the aforementioned suggestions will be of some help.

References

1. Medical Malpractice Claims and Risk Management in Gastroenterology and Gastrointestinal Endoscopy. American Society for Gastrointestinal Endoscopy, 2017. <www.asge.org>.

2. Physician Insurers Association of America. PIAA Claim Trend Analysis: Gastroenterology, iv. Lawrenceville, N.J.: PIAA, 2004. <http://www.piaa.us>.

3. Kane C., Policy Research Perspective: Medical Liability Claim Frequency: 2007-2008 Snapshot of Physicians, American Medical Association, 2010.

4. Schaffer A.C., et al. JAMA Internal Med. 2017;177(5):710-8.

5. Dodge A.M. Wilsonville, Ore. Book Partners, Inc. 2001.

An unfortunate fact for many physicians practicing in the United States is that they will contend with medical malpractice suits at some point in their careers. While data specific to gastroenterology malpractice claims is difficult to find,¹ the Physician Insurers Association of America has reported that out of the 28 specialty fields of medicine analyzed from 1985 to 2004, gastroenterology ranked 21st in the number of claims reported², representing about 2% of the total overall number of claims.

JAMA

Professional liability

Patients can allege or establish malpractice liability against a doctor based on a number of things; we will discuss a few of the most common types of liability, offer suggestions as to how you might minimize your risk of being sued, and how best to cope when you are sued.

Negligence: One of the most common theories you may be sued under is negligence. To state a negligence claim against a physician, a plaintiff must show that the doctor owed the patient a duty recognized by law, that the physician breached that duty, that the alleged breach resulted in injury to the patient, and that the patient sustained legally recognized damages as a result. In a lawsuit brought on the basis of claimed medical negligence, a patient claims that a physician, in the course of rendering treatment, failed to meet the applicable standard of care.

Contractual liability of doctor to patient: Physicians and patients can enter into express written contracts regarding the care provided. These contracts can include various treatment plans, the likelihood of success, and even the physician’s promise to cure. Traditionally, courts have respected a physician’s freedom to contract as he or she chooses. However, once a contract is formed, a plaintiff may have a cause of action for breach of contract if the outcome of the treatment is not what was promised.
 

Minimizing risk

Another opportunity to decrease your chances of being sued is to keep informed about recent developments in your field. Make a point to read pertinent literature, attend seminars, and do whatever is necessary to stay aware of, and to incorporate into your practice, current methods of treatment and diagnosis.

Physicians should also be cognizant of contractual liability. When discussing treatment, never guarantee results. Additionally, once a physician-patient relationship is established, you cannot withdraw from the relationship without providing adequate notice to the patient in time to obtain alternative care. Terminating the relationship without such is called abandonment, and can result in professional discipline and civil liability.

Conclusion

Before a lawsuit, and as a regular part of your practice, it is important that you thoroughly and legibly document all aspects of care provided, stay current with medical advances, and take the time to create a relationship with your patients involving quality communication. It is impossible for us to provide you with enough information to adequately prepare you for the day on which you may be sued. We nevertheless hope that following the aforementioned suggestions will be of some help.

References

1. Medical Malpractice Claims and Risk Management in Gastroenterology and Gastrointestinal Endoscopy. American Society for Gastrointestinal Endoscopy, 2017. <www.asge.org>.

2. Physician Insurers Association of America. PIAA Claim Trend Analysis: Gastroenterology, iv. Lawrenceville, N.J.: PIAA, 2004. <http://www.piaa.us>.

3. Kane C., Policy Research Perspective: Medical Liability Claim Frequency: 2007-2008 Snapshot of Physicians, American Medical Association, 2010.

4. Schaffer A.C., et al. JAMA Internal Med. 2017;177(5):710-8.

5. Dodge A.M. Wilsonville, Ore. Book Partners, Inc. 2001.