Private Practice versus Academia- Looking At the Numbers

This guest post was submitted by The Vetducator, a veterinary professor with more than 20 years’ experience in academia.  He has served as a section chief, department chair, director of the internship selection committee, and on numerous faculty search committees.  He reads extensively on financial topics, notably the blogs Mr. Money Mustache, White Coat Investor, and Richer Life DVM, and is on the short path to financial independence. We have no financial relationship.

In discussions among academic veterinarians attempting to recruit a new faculty member, salary is often the first and last word on the matter.  “Well, they can make so much more in practice, so they don’t want to enter academia.” I’ve heard this argumgment for years, but it’s never made sense to me.  I think specialists entering private practice may not be earning as much as they think they are.

There are practical differences between these jobs. In private practice, specialists are primarily doing clinic duty, with possibly some teaching of interns and residents and the occasional student.  In private practice, specialists may work four day weeks (80% clinic time). In academia, specialists do clinic duty, teaching, and research. A typical distribution for a tenure-track clinical specialist is 50% clinic time, 30% teaching, and 20% research. 

The financial differences come down to four domains: geographical arbitrage, taxes, benefits, and salary. Let’s go through each of them.

GEOGRAPHICAL ARBITRAGE

Almost every specialty veterinary hospital is located in a fairly large city, because that’s the population which can support expensive, specialized care.  In sharp contrast, because many veterinary schools are part of land-grant colleges, they are in rural locations.  The cost of living (COL) differential can be substantial.  I had a friend go from a university job in a low cost-of-living area to a private practice job in San Diego and acknowledged, “I will be saving much less money, even though the salary is much higher.”

Arbitrage is when you take advantage of different prices of the same asset.  Geographical arbitrage is using a different location to reduce your cost of living.  Specialist veterinarians can’t even practice in rural areas, UNLESS they work for a university.  The cost of living difference can be substantial. You pay much less for life in most towns where a vet school is than in most large cities where private practices are. 

Here are some examples of how far $100k goes in different cities where specialty practices are and towns where veterinary schools are according to Salary.com:

City w/Specialty Practice	Town w/University
Los Angeles $70k	Davis CA $83k
Seattle $84k	Pullman WA $114k
Atlanta $98k	Athens GA $109k
Chicago $86k	Urbana-Champagne IL $118k
Washington DC $63k	Blacksburg VA $113k
New York $55k	Ithaca NY $105k
Average: $76k	Average: $107k

Obviously, there are some veterinary schools in expensive towns: Fort Collins, Madison, Minneapolis, and Philadelphia come to mind.  And Davis is only less expensive relative to other cities in California- it’s far more expensive than most rural veterinary schools. From this quick subset of examples, though, $100k ‘earns’ you about $30k more in a rural town than in a large city. Since this is a percentage function, the higher your salary, the greater the absolute difference. Advantage: ACADEMIA

TAXES

It goes without saying that, as your income increases, your tax burden also increases.  Let’s look at two typical salaries for a starting veterinary anesthesiologist. In private practice, they may expect to make $160k, whereas in a university setting, they can expect to make about $120k.  Assume state and local taxes are similar and the person is married. The private practitioner will have an after-tax income of $121k and the university practitioner will have $93k.  That difference of $40k in salary now becomes a difference of only $28k of after-tax pay.  

This is because the university practitioner pays 22% in taxes for income between $77k and $120k, whereas the private practitioner pays 22% between $77k and $160k.  The difference would be even more striking if the private practitioner earned a $200k salary- their after-tax income would be $150k.

There is a difference of $80k in salary, but a difference of only $57k after taxes are paid.  Obviously, $150k is still a lot more than $93k, but it’s less than it seems on paper when you are evaluating straight salaries in an employment offer. Advantage: DRAW

BENEFITS

Everyone knows the benefits in academia are incredible.  “Sure, yes, university benefits are great.”  I had a fairly blase attitude towards my university benefits until I began comparing notes with some private practice colleagues. 

“What do you mean your practice doesn’t pay for your health insurance?”  “What do you mean your practice doesn’t contribute to your retirement plans?” 

I had no idea, but it is not uncommon for private veterinary practices to provide absolutely atrocious benefits.  As in, almost none, besides paying for the state license fee and continuing education.

The benefits in academia are, frankly, incredible.  In addition to generous annual and sick leave and holidays (although those depend on your clinic responsibilities), there is health insurance, retirement, and numerous miscellaneous benefits like reduced tuition for your children and the ability to pay off loans with Public Service Loan Forgiveness (PSLF). 

The retirement benefits alone can be incredible- a defined benefit plan (pension) for the rest of your life!  A match on 403b contributions! One employer I had just put whatever was 10% of our salary into a 403b- no contributions on our end required.  The benefits can easily be a 50% bump to your bottom line over and above the salary.

Corporate veterinary medicine benefits are fairly strong, though I have yet to find one that gives a pension.  One benefit you lose is your ability to qualify for PSLF. Quantifying the difference between corporate specialty practices and academia is difficult, but let’s put the difference around 10% of your salary.  Therefore, an entry-level private practitioner making $160k would put $16k of their salary towards benefits (such as retirement and health insurance), whereas an entry-level academic making $120k would put $0 towards comparable benefits because it is paid for by the institution. Advantage: ACADEMIA.

SALARY

Finally, of course, is the absolute salary.  This is the basis on which everything depends.  On the face, the private practitioner makes more.  In some disciplines, like radiology, this gulf can be vast- making $300k in private practice vs. $130k in academia.  Most specialties have less of a spread, though.

Most academic institutions allow the opportunity for locums. If you are income-motivated, it’s not hard to do a locum for 2-4 weeks a year.  These vary in payment, but if you assume $5k/week, you could plan to add $10k-20k to your salary. Often, travel and living expenses are covered by the institution so, except for taxes, the majority of this income goes to you.  I have not heard of private practices offering to send their employees away on locums.

Nonetheless, even when taking into account the ability to do locums as an academic, private practitioners will almost always make more. Advantage: PRIVATE PRACTICE.

A SIDE-BY-SIDE COMPARISON

So let’s do a complete breakdown of a theoretical newly married veterinary anesthesiologist.  One goes into private practice in San Diego, CA making $160k. Another goes into academia in Pullman, WA making $120k and does 2 weeks of locum to add $10k.

Private Practice in San Diego CA	Academia in Pullman WA
Salary: $160k	Salary + Locum: $130k
After-tax: $120k	After-tax: $99k
After benefits: $104k	After benefits: $99k
COL adjustment: $75k	COL adjustment: $111k

In the end, your effective take-home pay is actually LOWER in private practice than in academia, even though the starting salary is 33% higher.

All veterinarians should consider the influence of these variables on their effective income, but it is particularly true for specialists.  Some specialists practice in low COLA areas (Phoenix, Columbus, OH) and some universities are in high COLA areas (Madison, Fort Collins). The cost of living, the benefits, and the impact of taxes will dramatically affect your take home pay and standard of living.  In my experience, all of these variables are ignored by specialists talking about private practice vs. academia.

CONCLUSION

This focus on “The Salary” as the bottom line, and the only variable of interest, is problematic. Obviously, there are lifestyle and professional interest variables in play.  But I rarely hear about those. What gets brought up by residents when they discuss academia vs. private practice? Salary. Ignoring the importance of finances, benefits, and geographical arbitrage is leading to more residents choosing private practice.  If they read Richer Life DVM, understood finance, and really looked at the bottom line, I believe more would choose academia.

Thanks to The Vetducator for a “behind the scenes” look when it comes to the numbers behind academia versus private practice. It’s important that everyone, not just those who are contemplating academia versus private practice, consider the whole picture and look past the salary when making these important decisions.

Have you worked in academia and in private practice? What are the differences you’ve noticed when it comes to looking at these positions from a financial point of view? Comment below!