The Master Limited Partnership – MLP

The Master Limited Partnership (MLP) is a special type of limited partnership that is traded on a securities exchange like shares of any ordinary corporation. MLPs combine investment, tax, and risk features that offer many advantages and make them attractive to own. An MLP is a publicly traded partnership that the IRS treats as a corporation. It has many of the tax advantages of a limited partnership along with the liquidity offered by a publicly traded security. MLPs allow investors to invest in the transport and processing of energy products such as natural gas, coal, and oil. As investments, these industries appear to have a logical place in your portfolio.

Most MLPs are involved with the energy industry. They are involved in the processing, storing and transporting of energy resources, including pipelines, terminals, and storage facilities. They are not typically involved in energy resource exploration or extraction. Their role is in the delivery of intermediate or final energy products to processors or to the end user. This role limits many of the risks associated with potentially volatile pricing of energy products.

MLPs are mandated to distribute nearly all of the cash flow generated from business activities to investors on a quarterly basis. MLPs are structured so that management is incentivized to boost the quarterly distributions to their investors who are termed unitholders. This distribution is analogous to dividends and has been averaging 6% or more. The overall return of an MLP investment includes the dividend plus appreciation of the price of the MLP. Appreciation has been averaging 4-8% resulting in total returns in the 10-14% range.

Advantages of MLPs

  1. Quarterly cash distributions.

  2. Tax advantages

  3. No correlation with other investments

There are several advantages to MLPs. The quarterly distributions provide regular income. Tax advantages inherent in MLP investments is centered on the passthrough of income to the individual and avoidance of corporate income taxes. For the first five years following the investment, approximately 80% of cash payouts are not taxable. Capital gain taxes enter into consideration only when the security it is sold. Some of the expenses attributed to depreciation may also be passed through to the investor adding to tax benefits. These make MLP investments particularly attractive to investors who are harvesting tax-advantaged income.

MLPs are also valuable because there is little correlation between MLP and equity investments. Since MLP business activities involve providing energy, the demand for it is relatively stable except possibly in a severe economic downturn.

The major risk of an MLP investment is usually related to its management. The success of the firm is heavily influenced by its management. Political risk, particularly related to regulatory agencies and the IRS, interest rate risk and routine business risks affecting many different types of businesses are of course present.

The disadvantages of MLPs include their not being optimal for some tax-deferred accounts. In addition, tax reporting may be cumbersome. For example, pipeline MLPs may require filing of personal tax returns in every state the pipeline traverses. The familiar 1099 tax forms are replaced by K-1 (partnership) forms. In mid‑2010 MLP ETFs and mutual funds appeared. These facilitated the investors’ purchases of MLPs, but could require expertise in order to maintain the MLP tax efficiency. Personal tax implications may require consultation with your financial advisor. In summary, MLPs can be a valuable addition to one’s portfolio.

Buy Gold?

Buy Gold?

Buy Gold?

Gold has had a remarkable run-up in price from less than $250 per ounce in 2000 up to $1400 per ounce in November 2010. Yet I think it is still a good buy, is likely to further increase in price, and belongs in a diversified investment portfolio. Beacon Wealth Management, LLC organized a gold investing conference on October 21, 2010. The speakers, who were prodigiously knowledgeable about gold investing, approached this issue from different perspectives and came to similar conclusions regarding investing in gold.

Ralph Acampora, a brilliant investment analyst, felt that based on his analysis, gold was not overpriced and was clearly not in a bubble. Rachel Benepe, Manager of First Eagle Gold Fund views gold as a hedge against inflation, currency crisis, and market declines. She feels it is not necessary to accurately forecast the future price of gold, but regardless, it belongs in a portfolio as a form of insurance.

Current Factors that Favor Gold Investment:

  1. A weak US dollar.
  2. Quantitative easing in the US, which necessarily involves printing paper money.
  3. Inflation and government policies favoring inflation.
  4. Increased demand for gold by central banks worldwide.
  5. Increased demand by consumers worldwide.
  6. A perception of poor performance in many sectors of the equity markets.
  7. Gold as a hedge
    1. Nonsystematic market declines.
    2. Systematic declines due to the business cycle.
    3. Black Swan or totally unanticipated events.
    4. Ease of investing in gold.
    5. The current low interest rate reduces the opportunity cost of owning gold, which itself provides no cash flow, dividends, or interest.

Factors against Investing in Gold

  1. Policies directed against inflation.
  2. A bubble is present.
  3. Sudden increase in supply (unlikely).

How to Invest in Gold

Gold can be purchased via two main tracks: as bullion or coins, and by buying stock in companies that mine gold. The value of investments in gold mines is based on the estimated amount of minable gold, its price, and that company’s cost of extracting it.

You can invest either by owning physical gold and storing it, by buying stock in gold companies, or more effectively by using ETFs, like GLD, or mutual funds. ETFs are structured to contain either gold mines or pure gold. Gold mutual funds can be similarly structured or can combine these. Many of our clients have had a good experience with the Morningstar 5 star rated First Eagle Gold Fund (FEGIX) or First Eagle Global (SGIIX).

Leaving Medical Practice

Leaving Medical Practice

Many physicians have found this to be an opportune time to leave medical practice.

In these difficult economic times replete with reimbursement cutbacks and sinking revenues, many physicians have found this to be an opportune time to leave medical practice in order to retire or seek employment elsewhere. Optimally, most physicians would prefer to sell their practice, either to a colleague or a hospital. This is the ideal. If this were not possible, there are many steps which can facilitate the closing of the medical practice. The costs involved in closing a medical practice could be substantial, and these can be obviated by selling the practice. Appraisal by someone experienced in assessing the monetary value of medical practices can be revealing in establishing reasonable expectations for an appropriate market price. Even a minimal or bargain sale price will protect you from the costs of closing a medical practice. As is popular in many books, I have divided the exit from medical practice into 10 steps (Table I).

The longer the available time the greater the value that can be extracted from the practice and reduce the costs of terminating the practice. It is important not to enter into any long-term contracts with utility companies or other vendors that may run beyond your closure date. In selling a medical practice, the medical grapevine or your local hospital may provide opportunities. Medical practice brokers can be very helpful.

The first group to notify is your employees. Aside from a few highly placed, trusted, and valuable employees, they should be notified just before you are prepared to announce the retirement to your colleagues and patients. Employees should be incentivized not to leave early. Severance pay should be individualized and may be severely constrained by the availability of funds to a practice that may be declining. Patients should be notified 3 or more months before leaving practice. Active patients are those currently undergoing treatment or having been seen in the previous two years and they should be notified by mail. Others to notify are listed in table II.

Table 1 - Table 2 - Table 3

Insurance carriers must also be notified. First and foremost, is your malpractice carrier. This will stop or reduce the onerous malpractice premiums. If you have occurrence insurance, you will have effective coverage without the need for any, tail. The tail is necessary if you have claims made insurance in order to extend the insurance coverage until the statute of limitations expires. The other relevant types of insurance to be terminated are listed in table III.

Drugs and prescription pads should be eliminated according to the DEA guidelines. Medical records must be available for several years (6 years after the date of the last visit in New York). Handling of medical records can be difficult and costly. Record storage companies like Iron Mountain ( can store files in a manner in which patients can retrieve them at their cost. However, there may be costs for initializing the file structure and their storage. These are important, particularly for a physician who is retired from practice and is not generating revenues. The medical record problem can present the most difficulty. It may require time, space, and labor. In New York State, you can charge patients $0.75 per page plus postage for their records and so medical record distribution may evolve into a revenue stream. However, it is usually more efficient and less costly to sell or even give the charts to another physician who will be responsible for making them available to requesting patients.

Follow-up for patients should be arranged with suitable colleagues. Many patients will prefer to select their own physician from their managed-care panel. Other sources include specialty directories, local medical societies, and medical schools. Medical equipment can be sold or auctioned.

Communications must be kept open to the patients. It is axiomatic that the U.S. Post Office be instructed to forward the mail to you. Email, telephone and fax lines must be maintained. There should be little need for the complex services offered by an expensive telephone answering service. This could be replaced by either a programmable answering machine or an online service. I personally prefer the latter as voice mails are instantly converted to e-mails and forwarded to my computer mobile email/smartphone device. Similarly, I utilize an online fax service. Both these services are inexpensive.

The accounts receivable collection process must be maintained. If you are using a billing service, it is simple just to continue the service. If your billing is being done in-house, it may be advisable to switch to a billing service a few months before you leave practice and continue this service thereafter. Accounts payable will diminish rapidly and should be easy to maintain with software such as QuickBooks.

Anyway you look at it, closing a medical practice can be frustrating, costly, and time-consuming. I view the following three areas as the most likely source of difficulty:
1. The equipment can be disposed of, as I described above.
2. The accounts receivable should probably be outsourced to a billing service, because it can continue for a long period of time. The Accounts Payable is usually easily handled and diminishes rapidly with time.
3. The patient records can require frequent and prolonged attention.
Hopefully, some of the steps outlined here can streamline the process of terminating a medical practice.

What you need to know about ETFs

Exchange Traded Funds (ETFs) have been around for less than 20 years and are becoming more popular. ETFs are portfolios of securities that are usually passively managed and track an index.  There was a recent Barron’s section devoted to these products.  They report that assets in ETFs equal 15% of those held in traditional mutual funds and are expected to grow 20% per year for the next 5 years.  Bond ETFs increased 85% in the past year.

Why have ETFs become popular?  Their popularity is probably due to the greater tax efficiency and lower costs when compared to traditional mutual funds and index mutual funds.  Whereas mutual funds must sell stocks when clients redeem shares, ETFs do not as these products are traded as routine stocks are bought and sold.  Thus there are tax savings, which would necessarily follow the sales of the appreciated stocks by mutual funds.  Furthermore most ETFs are programmed and do not require much personal fund management.  This contributes to lower managerial costs. ETFs exist, which cover almost every equity, commodities, and debt index.  Inverse ETFs track the reverse or opposite of the market or index. 

Most ETFs are not leveraged, but leveraged funds are also available.  They are thus used to take short or bear positions.  Actively managed ETFs are also appearing.  These would seem to be closer to traditional mutual funds because costs associated with fund managers must be assumed.  However, the tax advantages, the advantages of margin sales, stop, and limit orders apply and the fund can be traded at any time of the day.

Advantages of ETFs:

  1. Lower costs.
  2. Tax advantages.
  3. They provide diversification within the sector of the index that they track.
  4. They facilitate asset allocation and diversification across all asset categories.
  5. Unlike traditional mutual funds, they can be traded at any time of the day not just at the end of today.
  6. Margin, stop, limit, orders and short selling, are permitted.
  7. No 12b-1 fees (annual marketing or distribution fees charged by mutual funds) are applied.
  8. Shares are purchased from a broker.  Brokerage fees apply, but sales and marketing charges associated with mutual fund purchases are excluded.
  9. Inverse ETFs facilitate short selling, hedging, and do not require margin accounts.
  10. ETF risks appear to be no greater than those associated with the individual stocks, bonds, or commodities they track.
How to Invest in the New Economy

How to Invest in the New Economy - Thursday, April 29, 2010

If you would like to learn more about ETFs, I urge you to attend the Fairleigh Dickinson University seminar “How to Invest in the New Economy” – Thursday, April 29, 2010 at 6:30 pm, Wilson Auditorium, 140 University Plaza Drive, Hackensack, NJ 07601 (10 minutes from the George Washington Bridge). There is no cost or any other obligation associated with attending this meeting. Three dynamic presentations are planned for this highly informative program: FDU Professor of Economics Dr. Burton Zwick will discuss the effects of global and national economics events on investing; Delbert Stafford of iShares, a specialist in Exchange-Traded Funds (ETFs) will talk about this new and important investing modality; and CEO of Beacon Wealth Management – Mark Germain, CFP™, MBA, will present tax efficient investing and dynamic allocations based on the new economy. Patrick Williams, publisher of Worth Magazine and VP of Sandow Media will also be in attendance and opening the program.

I urge you to attend, as I expect this to be a valuable learning experience and an entertaining evening. Doors open at 6:30 pm, an elegant Kosher menu featuring light refreshments and hors d’oeuvres and wine will be served.  Reserve now, space is limited and on a first-come, first-serve basis – please call me or Tina Powell at 201-447-9500 to reserve. I am looking forward to seeing you there and greeting you in person.

End the Fed? Are You Crazy???

End the Fed? Are You Crazy???
End the Fed? Are You Crazy???

I just finished listening to the audio book, “End the Fed,” by Ron Paul. He is an 11th term Republican congressman from Texas. His website describes him as, “America’s leading voice for limited constitutional government, low taxes, free markets, and a return to sound monetary policies.”[1] His book makes a glib case for eliminating the Federal Reserve. He blames many of our economic ills on the Federal Reserve. I tend to vote Republican in national elections. I am a firm believer in Adam Smith’s, “invisible hand,” in allowing market forces to rule the economy. In addition, because Ron Paul is a fellow physician, I felt I had a natural affinity toward him and eagerly anticipated listening to this book.

I was somewhat repelled by his isolationist policies. While these may be good for our personal tax liabilities, I doubt that they are good for our country or our security and so many threatened or impoverished people around the world would suffer as a result, I consider these isolationist policies to be immoral. I found many of his opinions very simplistic and dangerous. His calls for auditing the Federal Reserve and making it responsible to Congress seem long overdue. “After all, The Federal Reserve System is accountable to no one, it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody-and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue…”[1] Ron Paul’s views that the Federal Reserve functions the way it does because of greed, suggested to me that these views were somewhat paranoid.

Blaming so many economic ills on the Federal Reserve and suggesting that its elimination would be therapeutic, seems to me to be very naïve. We have to remember that all was not terrific and rosy before 1913 when the Federal Reserve came into being. During the nineteenth century and the beginning of the twentieth cen­tury, financial panics plagued the nation, leading to bank failures and business bankruptcies that severely disrupted the economy.  We must remember that the impetus for the development of the Federal Reserve was the panic and bank runs that were associated with the 1907 depression. I never personally observed a bank run, but the following description is scary. This scene is at the Knickerbocker Trust Company downtown office in the Metropolitan Life Building at 66 Broadway in the heart of New York City’s financial district. “At first, the line there extended only from the banking room out to Broadway, but as the day progressed it doubled upon itself in a great, “S.” While the morning crowd was comprised only of about 50 people, “as fast as a depositor went out of the place 10 people and more came in asking for their money…. and the police of the W. 30th St., Station were asked to send some men to keep order…. The worst and most dangerous feature… was the alarm among the public… for an hour after the doors were closed most of the waiting depositors stayed in formation… within 2 1/2 hours on Tuesday, October 22, 1907, the Knickerbocker Trust Company had returned more than $8,000,000 to depositors at its offices in 4 branches.”[2]

“The Federal Reserve System is a central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.”[3] Today, the Federal Reserve’s duties fall into four general areas:

  1. conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employ­ment, stable prices, and moderate long-term interest rates
  2. supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
  3. maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  4. providing financial services to depository institutions, the U.S. gov­ernment, and foreign official institutions, including playing a major role in operating the nation’s payments system

No, Ron Paul, the Federal Reserve should not be eliminated. Your suggestions regarding the audit and regulation of the Federal Reserve are applauded. The Fed should be repaired, adjusted, or modified where necessary. A return to the pre-Fed days is very scary. Apparently, many Wall Street professionals agree with this. We saw that the Dow was negatively affected when Bernanke’s reappointment looked doubtful and it responded very positively when his reappointment was confirmed by the Senate.


[2] Bruner, RF and Carr, Sean D, The Panic of 1907: Lessons Learned from the Market’s Perfect Storm, John Wiley & Sons, Inc., 2007.

[3] The Federal Reserve System, 9th edition 2005,

Doctors Grateful to Massachusetts

On Tuesday, January 19, 2010 we physicians (a.k.a. healthcare providers) dodged the Obama care bullet when Scott Brown, the Republican candidate, won the Massachusetts senatorial election. This increased the probability that our current medical care system would persist and we would be able to continue practicing medicine and providing health care to our patients. The threats implied by Obamacare were designed to enhance the delivery of healthcare to a larger percentage of Americans, by significantly changing our current healthcare delivery system, and reducing the availability of quality care. These threats seem to have been mollified for the time being. The solo and small group practitioners, probably the backbone of the American health care delivery system, were facing obliteration in favor of large groups of physicians. In his effort to improve the current system, the authors of the current legislation seem be, “throwing out the baby with the bathwater.” A significant part of Brown’s campaign was in presenting himself as the 41st vote that could thwart the health bill.

Interestingly in 2006 Massachusetts Governor Mitt Romney introduced universal health care to which Obamacare has many similarities. Ironically this vital election was in Massachusetts where voters appreciate first-hand how costs have increased and benefits have been minimal. Despite original anticipation that the Massachusetts universal health care program would reduce costs, Massachusetts insurance costs have increased 21-46% faster than the US average since 2005. Massachusetts employer-sponsored premiums are the highest in the US.

We have all seen how managed care and Medicare have discouraged innovation and creativity by defining these practices as, “experimental,” and declining reimbursement. Their focus on declining reimbursement for appropriate and effective treatments, whenever there is even a remote possibility of labeling it, “experimental,” must impede medical progress. Perhaps more significantly, this policy has resulted or can result in discouraging creative and innovative persons from entering medical practice.

I hope that Obama’s focus on the banking system will relieve some of the pressure we physicians encounter. Brown’s win also could restore the two-party system and reduce Obama’s monopoly-like approach.

In an interesting book, “How Capitalism Can Save American Health Care,” by David Gratzer, the author, a Canadian born physician who has practiced in both the Canadian and US healthcare systems, describes how the Canadian system multiplied inefficiencies, discouraged innovation and punished patients. Having practiced in both systems of health care, he is eminently qualified to comment on these. He feels that rationing of health care is inevitable and he describes this as having been done in the, “most draconian ways.” The author feels that a government controlled system lacks a critical ingredient, competition. Competition will result in cheaper, better, and more accessible health care for everyone.

We are all grateful to the Massachusetts voters for their vigorous and decisive comment on the Massachusetts health care system and the threat its widespread imposition is to the rest of this country.

The Current Yield Curve – Should We Be Optimistic?


The current abnormally steep yield curve makes that a topic worthy of elaboration.  On January 4, 2010 the Treasury Yield Curve was as follows:[1]

Yield Curve as of 1/05/10

Yield Curve as of 1/05/10


Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
1m 3m 6m 12m 24m 36m 60m 84m 120m 240m 360m
1/05/10 0.03 0.07 0.17 0.41 1.01 1.57 2.56 3.28 3.77 4.54 4.59


In general there is a relationship between the current or annual yield and the length of time to maturity for those instruments at the same level of risk.  This is because the investor assumes increased risks for a longer period of time, during which time more unpredictable events can occur.  Generally, a higher rate of interest is associated with a longer time to maturity.  If one plots the years to maturity vs the interest rate, the resultant yield curve generally slopes upward.   The bond’s yield is under discussion and not the interest (coupon) rate the bond provides.  Rising equity prices, as a result of optimistic expectations of improvement of the economy usually results in rising interest rates and reductions in bond prices.

There is an interesting discussion of the yield curves in the September 27, 2009 Financial Times. The shape of the U.S. Treasury Bill, note, and Bond composite yield curves is taken as a benchmark.  This is available in many daily financial newspapers and is also available from the U.S. Department of Treasury website.  The Financial Times article reports that banks are buying more bonds than previously and the author speculates regarding the effect that this could have on bond yields.  It suggests that bank bond buying may be a factor lowering short term yields.  Currently the yield curves are steep because of Federal Reserve’s policy of low interest rates. 

The significance of the steep yield curve is admirably described in a December 19, 2009 article in the Financial Times.[2]  “A key relationship between US government bond market yields entered the record books this week, and could be a long-term “buy” signal for equity investors. The Treasury yield curve, which measures the difference between short and long-term interest rates and is a barometer of expectations about the economy, inflation and Federal Reserve policy, has become steeper than at any point in its history. A steep yield curve – denoting much higher yields on longer dated bonds – arises whenever the Fed cuts interest rates, and feeds expectations that the economy will soon start growing quickly. The steepness of the yield curve indicates that policy-makers are aggressively reflating the economy. After the Fed reiterated on December 16, 2009 that it would keep its overnight rate low for an extended period, the gap between two and 10-year Treasury yields briefly rose to 276 basis points. That eclipsed the previous record of 274bp set in August 2003 and the 268bp in July 1992. Steep yield curves in 1992 and 2003 were long-term “buy” signals for equity investors.”


Yield Curve as of 12/16/09

Yield Curve as of 12/16/09

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
1m 3m 6m 12m 24m 36m 60m 84m 120m 240m 360m
12/16/09 0.02 0.04 0.17



1.36 2.35 3.09 3.61 4.42 4.52

We hope that the steep yield curve again is a favorable prognostic indicator and we can look forward to an improved economy.


[2] Mackenzie, M, Steep Yield Curve could entice buyers off sidelines. Financial Times December 19, 2009.


Federal, state, and municipal governments all issue debt securities. This blog will discuss those offered by the federal government. The federal government offers bills, notes, and bonds. These are very attractive because they are free of default risk and the interest earned is not taxed by state or municipal governments.  These securities can be held until maturity or easily sold in the secondary market before that. At maturity the face value of the security is paid back to the investor. 

Treasury bills are short-term government debt securities with maturities of less than 52 weeks. Treasury bills, or T-bills, are issued at a discount from the par amount (face value). The discount rate is determined at auction. Treasury bills pay interest only at maturity. The interest is equal to the difference between the face value and the purchase price. They are sold in increments of $100 and the minimum purchase is $100. All Treasury bills, with the exception of 52-week bills, are auctioned every week. The 52-week bills are  is auctioned every four weeks. T-bills are issued electronically.

Treasury notes, or T-notes, are the second type of debt securities issued by the federal government.   T-notes have longer maturity terms than T-bills.  T-notes are issued with maturities of two, three, five, seven and ten years, and pay a fixed rate of interest every six months until they mature. The price of a note may be greater than, less than, or equal to the face value of the note. The yield on a note is determined at auction. Notes are issued in electronically.

Treasury bonds are issued with a maturity of 30 years and pay interest every six months until they mature. The yield on a bond is determined at auction.

Treasury Inflation-Protected Securities (TIPS) are marketable securities whose principal is adjusted according to changes in the Consumer Price Index. With inflation, there is a rise in the Consumer Price Index and the TIPS the principal increases. With deflation, defined as a decrease in the Consumer Price Index and the TIPS principal decreases. TIPS will be the subject of a future blog.

Treasury bills, notes, and bonds can be purchased directly from the TreasuryDirect website: The site contains a wealth of pertinent information about these securities. They can also be purchased from banks or brokers. There is no commission on direct purchases from TreasuryDirect, but banks and brokers do charge commissions.

Treasury bills, notes, and bonds share many of the same advantages:

  1. All three are extremely safe and have no risk of default;
  2. The interest earned on them is free of state and municipal taxes;
  3. They can be purchased easily at or from your bank or broker; and
  4. They have high liquidity and can easily be sold prior to maturity.

The differentiating factor between the three instruments lies in their yield risk and risk of inflation.  The longer the term, the higher the yield curve risk and risk of inflation.  Therefore, Treasury bills have little yield curve or inflation risk, Treasury notes have increased risk and Treasury bonds – with the longest terms – have the greatest risk.  The exaggerated risk associated with Treasury bonds translates into higher interest rates.

Treasury bills are an excellent way to park funds safely and tax-free (not free from federal tax), but at a low interest rate. They are particularly valuable to purchase if cash is available, but will be needed some time in the future. The cash can be put to work for that period of time and then be readily available when it is needed. Treasury bills are useful in managing cash flow in a medical practice in this manner. They may, therefore, rival money market instruments and short term CDs. Their freedom from municipal and state taxes can be helpful, especially in the New York metropolitan area. 

One last note:  when comparing returns on Treasury bills with other investments, the following formulas are relevant:

Simple Return = (Income + Change in Price) ÷ Invested Funds

Current Yield = Annual Interest (Coupon) Payment ÷ Current Market Price

Bank Discount Rate = (Discount ($) ÷ 100 – Discount ($)) x (360 ÷ Days Until Maturity)

T-Bill Price = 100 – (Bank Discount Rate x 100 x Days Until Maturity) ÷ 360

Bond Equivalent Yield (BEY) = ((Face Value – Price Paid) ÷ Price Paid) x ((Actual Number of Days in Year) ÷ Days Until Maturity)

Electronic medical records: Does the investment make sense?

Modern technology can streamline many office practices and enable physicians to work more efficiently and economically.  Although there may be an initial cost to implementing new technology, the subsequent returns should exceed the costs.  The technological advances that have enabled me to function more economically, more efficiently, and thus, more profitably can be divided into the following categories:
  • Electronic medical recordkeeping
  • Electronic prescribing
  • Accounts receivable and communication with insurance companies
  • Office scheduling
  • Accounts payable
  • Document management
  • Medical information and research

Filing rooms like this will be a thing of the past.

Today I will focus on electronic medical record keeping.  The other topics listed above will be discussed in subsequent blogs.  If you are not already computerized, this may be a particularly opportune time to start.  On Feb. 17, 2009, President Obama signed the American Recovery and Reinvestment Act into law.  This appropriates close to $20 billion to encourage healthcare providers to adopt and effectively utilize electronic health records (EHR).  Physicians are eligible to receive $44,000 for meaningful use of an approved EHR System.

In my own practice, I have been using template-based voice recognition software for all of my reports since 1988.  My colonoscopy reports are produced on an Olympus endoscopic report generator.  My associates dictate via an 800 number to a New Jersey based transcription service, which emails the completed reports within 24 hours.  Since 2000, we have coupled this with a PaperPort-based document management system enabling our office to be completely paperless since 2000.  This has resulted in significant cost savings.  The space formerly utilized by medical record storage racks can now be productively utilized to generate revenues and we no longer pay to warehouse files offsite. We have one employee who spends approximately 35% of his time maintaining patient files.  This work can be readily performed by any of our receptionist staff with a little training, if needed. 

While our EHR fulfills all of our needs, it probably will have to be replaced in order to comply with the new guidelines. I was waiting for official standards to be established before switching to another EHR System.  I have always been concerned about the time required to enter clinical data into any EHR system and found that for our practice, voice dictation worked best.  I am now looking either to modify my current system or purchase a system in order to comply with the HITECH Act, a component of the American Recovery and Reinvestment Act of 2009.

There are at least two motives to the government’s plan.  One is to have physicians adopt electronic medical record keeping and the second is to make patient records generally available and mobile.  There are three criteria in order to qualify it for the government grant and they are as follows:

  • Use of a certified EHR program with electronic prescribing capability
  • Ability to have your medical records electronically accessible
  • Ability to report on the efficacy of your program

The HITECH Act divides physicians into those who accept Medicaid and those who accept Medicare.  Medicare providers can receive up to $44,000 over five years.  This is organized so that those who comply by 2011 will maximize their yield from the $44,000.  This is structured so that in the year 2011 they can receive $18,000, in 2012 $12,000, in 2013 $8000, in 2014 $4,000, in 2015 $2,000.  In 2015 physicians who do not participate will receive a reduction of 1% per year for three years.  At this time physicians who electronically prescribe can also receive up to $6,000‑$8,000 annually from Medicare.

In summary, this appears to be the time to either adopt EHR or make your system compliant with industry standards.  At this time, I cannot endorse any particular vendor, but I recently started working with Allscripts ( to accomplish this.  The Allscripts website is an excellent source of information on HITECH.

Next week:  Look for my article about ETFs.

Convertible Bonds

During the current financial crisis we have seen an increased interest in convertible bonds. This blog will outline the technical issues with convertible bonds, the basis for the recent attention they have received, and their current status. In our current financial quandary with banks extremely reluctant to lend funds, many companies have gone the convertible bond route to capital funding.

Earlier this year, the Financial Times reported, “Convertibles are attractive because the cash from the initial bond allows companies to rebuild their balance sheet without immediately having to placate shareholders. Investors get the potential upside of the equity option with the downside protection of the bond coupon payments.”  In other words, for investors, convertibles have the protection of a maturity date, fixed interest rate and face value, but still allow investors to capture gains from increases in stock prices.  This combined with the fact that many convertible bonds are viewed as undervalued makes them worthy of further investigation.

Convertible bonds represent true debt to the issuer. Determining their market value is not easy.  Most investors believe it is simply a matter of knowing the bond’s face value, maturity date, and yield, but because of the possibility of converting the bond into shares of common stock, investors must also understand the value of the company’s stock at the time of bond purchase and be able to estimate its stock value in the future.

Here are some quick definitions:

 Current Yield  =  annual interest payment ÷ price of the bond

 Yield to Maturity –  The yield when the bond is held until maturity. It is calculated on a financial calculator or a spreadsheet and factors in the current yield as well as the value of the bond at maturity.

 Conversion Ratio – The conversion ratio determines the number of shares of common stock a convertible bondholder would receive if the bond were converted into stock. The conversion ratio is set at issuance date.

 Conversion Ratio = FV face (par) value ÷ Pe (exercise or conversion price).

Convertible bonds also have a Conversion Value. Conversion value represents the equity portion of the convertible bond. The conversion value or equity value is the stock’s current price multiplied by the pre-specified number of shares for which the convertible bond can be exchanged.

 Conversion Value = No. of Shares if Converted x Current Stock Price

The convertible bond conversion price is the effective price for conversion into stock with the bond at par or face value.  A convertible bond investment value is its value as a bond. The conversion premium is the premium an investor will pay over a “straight” bond price, representing the value offered by the convertible’s option to be converted into common stock. Calculating a convertible’s value is complex because it is affected by so many factors, including the performance of the underlying stock, its volatility, and interest rates.

 Convertible bond Advantages to Investor:

  1. Relatively senior security.
  2. Appreciates as stock price increases.
  3. Limits losses due to decreases in stock price.
  4. Yields typically higher than common stock.
  5. Equity risks decrease for equity investors.
  6. Equity risks ­increase for those bond investors seeking this increased risk.
  7. May have a put option.

Convertible Bond Disadvantages to Investor.

  1. Lower yield than nonconvertible bond.
  2. Potential inverse association between the convertible bond’s price spread and the issuer’s stock price.
    • Price spread may widen as the stock price decreases or contract as the stock price­ increases
    • For some convertible bonds a bond’s price may be greater than or equal to the fall in stock price
  3. Almost all convertible bonds are callable, meaning the corporation can redeem the bonds at its discretion. You get the face value back, but may have to reinvest the money in a less attractive investment.

Convertible bonds may well be a useful addition to your portfolio.  Investing in convertible bonds is usually most efficiently performed via convertible bond mutual funds, such as Fidelity Convertible (FCUSX) or closed fund such as Calamos – CHY.   A good rule of thumb is that if you have less than $1 million to invest in convertibles, it’s a good idea to look into a convertible bond fund.  A useful Web site for information on convertible bonds is