Launching a private medical practice is no walk in the park. Between securing equipment, navigating regulations and marketing your new business, there's a lot to tackle in a short time. To assist you in your journey, we contacted industry experts and advisors to nail down the broad strokes of what to expect when creating your medical practice. As with most other businesses, it comes down to planning and putting together a smart, reliable team to execute that plan efficiently. Still, there is much more you'll need, like financing and equipment, as well as an understanding of the many regulations facing the medical industry. Read on to help ensure the success of your own private medical practice.
Editor's note: If you've already got a plan in place and want to focus on choosing the products and services you'll need to run your business, you can read our medical practice services reviews.
- Best Electronic Health Record Systems
- Best Practice Management Systems
- Best Medical Billing Services
- Best Medical Transcription Services
- Best Credit Card Processing for Medical Practices
- Best Background Checks for Medical Practices
- Best Online Fax Service for Medical Practices
Why open your own practice?
The inherent risk, upfront expenses and difficulty of opening your own practice may explain the breakneck pace of consolidation on display in the healthcare industry. According to Becker's Hospital Review, the rate of consolidation across the entire medical industry has only increased. In the first quarter of 2017, there were 48 physician medical group mergers and acquisitions, which was a 78 percent jump from the final quarter of 2016.
The influence of large enterprise systems and big-name hospitals over healthcare providers has grown as control of the industry has become concentrated in fewer hands. For many providers, joining these conglomerates seems to be the only realistic choice. Indeed, after spending so much money and time attending medical school, why go through the risk and trouble of starting your own practice when you could simply step into a well-paying job, where business operations are already established and there are no overhead costs to you?
For starters, when smaller, private practices open, it means more competition and more widespread distribution of profits throughout the industry. It also means that more healthcare providers are granted a larger degree of autonomy, becoming free to determine their own workflows. Another major byproduct of proliferating smaller practices is that they help expand healthcare access to local areas that might currently be underserved.
Also, the ability to "be your own boss" is a large draw for entrepreneurial providers who choose to enter private practice. The sense of ownership and agency that comes with running your own practice is unmatched in a larger hospital system. The good news is that, as difficult as it can be to get your practice started, it's well within reach if you have the right information. Our guide aims to get you started.
The first steps
There is no universal formula for starting a medical practice. It might be worth your while to hire a professional consultant who has started medical practices before and is aware of the potential pitfalls. After all, the details of starting up will vary from specialty to specialty, and some laws and regulations might differ by state. A professional will understand the variables and help you plan accordingly. Some new practices might need to hire contractors to outfit their new offices, while others might find an available turnkey location. Overall, many common items must be on your checklist when building your practice from the ground up.
With so much to do, you might be asking yourself where you begin. In a word – financing.
Again, the actual dollar amounts vary depending on your unique situation, but in general, you should aim to secure at least $100,000 to cover equipment and startup costs, said David J. Zetter, lead consultant at Zetter Healthcare Management Consultants and a member of the National Society of Certified Healthcare Business Consultants. In addition, Zetter said you should try to obtain a $100,000 line of credit to cover payroll and bills until your revenue stream is established and stable, which will take some time.
"If you're not independently wealthy, or you just have enough money to set out the cost to open but also need to have operating capital until revenue comes in, then you need a loan," he said.
So, how can you convince a bank to front you the money you'll need?
Step 1: Creating a pro forma and obtaining financing
A pro forma is essentially the lighter version of a full-blown business plan, with revenue and debt projections grounded in reality. In a pro forma, you account for all of your expenses, debt and anticipated revenues. This also means knowing where your patients will come from – are you already part of a referral network, or do you expect them to come in off the street? Bankers can tell what projections are realistic and which aren't; it's their job to make wise investments, so you'll want to back up any numbers you use. In fact, you might look to incorporate statistical analyses of comparable medical practices to support your hypothetical projections. A strong pro forma will project at least three years into the future, sometimes as far as five years out.
"The first thing you need to do is build a pro forma, which basically tells the story of what your revenue will be from the first until at least the third year, because you need to go out and get financing," said Zetter. "You need to include the costs to set up the practice, your lease's cost per square foot, your [electronic health record system] expense, medical supplies and office supplies. You're building a crystal ball of what the practice looks like, and you have to be able to tell how all of those numbers came into being."
Obtaining financing, typically through a traditional bank loan, can be tricky, especially considering that many healthcare providers have a negative net worth after taking on debt to attend medical school. That's where a solid, realistic pro forma comes in. Max Reiboldt, president and CEO of the Coker Group consulting firm and author of "Starting, Owning, and Buying a Medical Practice" (American Medical Association, 2011), explained the importance of a rational business plan and the absolute need for startup financing.
"You're not going to get capital to start your business without a solid business plan," Reiboldt said. "We show cash-flow needs and debt projections by month, or at least by quarter. Furthermore, in healthcare you don't get paid very much when you perform the services. You're really at the mercy of the insurance companies and the government. So, there is a tremendous lag … on cash flow on top of this tremendous capital investment you're making."
Some financing tips
1. Find the specialists. Submit your pro forma and loan request to the medical/dental division of the bank, if it has one. These people specialize in the healthcare industry and understand the risks, expenses and revenue models of that sector.
2. Shop around. Submit your pro forma and loan request at five to 10 banks. That way, you'll receive several offers, each with slightly different terms. Prioritize what terms are most important to you – interest rate, amortization schedule, etc. – and then make your selection based on which offer you deem most attractive.
3. Stay conservative. When creating your pro forma, maintain a conservative approach to purchasing equipment and furniture – and stick to it. You don't need leather chairs and cutting-edge machinery just yet. All of that will come with time and success, but right now is about setting yourself up for that success.
4. Use the waiting period wisely. While the banks are reviewing your pro forma and considering whether to approve your loan request, you can prepare to tackle some of the next crucial steps, like signing a lease, determining whether you'll need to hire a contractor to modify your space, incorporating as a legal entity, obtaining a tax ID, buying liability and malpractice insurance, and credentialing with your payers (see below).
[For more information on finding the best small business loan, see our small business financing reviews.]
Step 2: Purchasing equipment and staffing your practice
Once you've obtained a loan and opened a line of credit, you're ready to start putting together the meat and potatoes of your practice – hiring your team and purchasing the equipment you'll need. This task is easier said than done, and ample research is necessary for each decision. But again, with a little planning and the right information, setting yourself up for success is just a matter of effort. Here are some of the things you'll want to consider.
1. Electronic health record system
Electronic health record (EHR) systems are increasingly universal tools of the trade for medical providers. Digitizing records and streamlining communication is a high priority for the modern healthcare provider. An all-inclusive EHR will serve as a one-stop system for your patients' records and histories, communications with other providers, lab and prescription orders, and information on your revenue cycle. Moreover, you'll need a well-functioning EHR system to qualify for federal incentive payments. For more information on selecting an EHR system and recommendations, see Business News Daily's guide to electronic health record systems.
Editor's note: Looking for an electronic health records system for your medical practice? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:
2. Practice management system
Your practice management system is the lifeblood of your practice. Integrated with your EHR system, a practice management system keeps track of all your front-office information and facilitates operations. Chief among its uses is conducting and monitoring your billing and revenue cycle. Not only will your staff use the practice management system to bill patients and send claims to payers, but any relevant information will be shared between the EHR system and the practice management software, eliminating the need to duplicate records. For more information on selecting practice management software and recommendations, see Business News Daily's guide to practice management systems.
3. Medical billing service
Of course, you can always outsource your billing to a third-party company. You'll still need a practice management system, but then your staff won't be responsible for overseeing the billing process. Not only is submitting claims time-consuming and difficult, but your staff would also be responsible for responding to rejected or denied claims to get the money due to your practice. When you opt for a third-party billing service, that burden shifts to the company you've contracted with. Still, there are a lot of potential problems with a third-party biller. For information on choosing a medical billing service, visit Business News Daily's guide to medical billing services.
4. Medical transcription software
You'll want to consider how medical transcription fits into your practice. There are typically three ways a medical practice performs transcription: in-house with a staff member, via voice recognition software, or outsourced to a medical transcription service. The key aspects are timeliness and accuracy; you want your dictations returned in print quickly, but only if they're accurate, especially if they're going to another healthcare provider or will be uploaded into your EHR system. If you're considering medical transcription and wondering which method is right for you, consult Business News Daily's guide to medical transcription.
5. Background check services
Medical practices are founded on trust. Not only do they handle a lot of sensitive patient information every day, but people are literally trusting the practice with their lives. That extends beyond exams, diagnoses and treatments; you'll want to make sure you know your staff inside and out, which means employing a background check system. Of course, you'll be interested in criminal and employment histories, but healthcare providers have more to consider beyond what the average background check provides. There are also required certifications and licenses to consider. Failing to ensure the applicable staff isn't properly credentialed could result in big problems for your practice. For your reference, Business News Daily reviewed background check services and came up with our best pick for medical practices.
6. Credit card processor
Although you'll be making most of your money through payers like insurance companies or Medicare, your practice is going to need a credit card processor for when patients have to pay at the point of care. Not only has the world of credit card processing changed lately, with the addition of EMV chips and other security measures, but some systems are more suited to the medical field than others. Our best pick offers additional security and is a participant in the American Medical Association's Member Value Program, which partners with vendors to provide discounts and perks to medical practitioners. Find out more about Business News Daily's choice for best credit card processor for medical practices.
7. Office manager
As you assemble your front-office team, you'll need a reliable office manager to run the day-to-day operations of your practice. Of course, this person must be responsible and dedicated, but those qualities are not enough. You'll also need someone with the necessary experience.
"You need to decide how you're going to staff your practice. Who's going to help you run your practice? A friend? A nurse? Your spouse?" said Zetter. "If you get an accountant to do it, get one that knows how to run a medical practice. The office manager needs vision and to take strategic actions to build the practice properly."
You might also consider hiring a professional consultant to occasionally take stock of your practice once it opens and report back on its operations. A trustworthy office manager is a huge asset, but not a guarantee of a successfully run office. A professional firm contracting with your practice, however, has a financial stake in giving you an honest appraisal of how things are running.
8. Ancillary services
You'll also want to consider any ancillary services you might want to offer your patients based on your specialty and their needs. It could be a great way to make some extra money, as well as differentiate yourself from the competition and keep your patients happy. For example, Reiboldt said offering a service such as bone-density tests onsite might be in your best interest. Of course, the necessary equipment and training for staff represent an additional expense.
"Many specialists and some primary care providers will want those ancillary services," Reiboldt said. "Why? It's a convenience thing for the patient, number one, and secondarily, it adds income to the practice. But it also adds expense."
Step 3: Preparing to open
You must complete several logistical steps before you can open your doors. These things should really be done in conjunction with steps 1 and 2. Credentialing, for example, can take quite a while and depends on the pace at which other organizations operate.
1. Incorporating as a legal entity and obtaining a tax ID
This one is self-explanatory, but extraordinarily important. The main reason for incorporation is limited liability, which means if you're sued, only the assets held by the company are subject to any risk. Without incorporating, you've opened up your personal assets to the threat of lawsuit. Moreover, as Medical Economics notes, certain tax benefits are associated with each type of entity. Whether you incorporate as an S-corp or LLC, a C-corp or a general partnership, it's important to do your research on each type of entity and the potential benefits it offers your practice. To figure out which business entity is right for you, visit "How to Choose the Best Legal Structure for Your Business."
2. Credentialing physicians with payers
You will also need to get your healthcare providers credentialed to submit claims to the payers you'll be working with. The credentialing process can take up to three months, but Physicians Practice suggests giving yourself as long as 150 days, in case something goes awry. You'll need to navigate the process for each payer you plan on submitting claims to, which includes offering up information on each physician's work history, proof of malpractice insurance, hospital privileges, attestations and more.
3. Establishing policies, procedures and compliance documentation
A set of responsible, current, and verifiable policies and procedures, in addition to compliance with all legal regulations, is a vital component of your practice's success. These standards should cover all your daily operations, including data entry, billing and interactions with patients. Since the healthcare environment is always changing, you'll want to periodically update your policies and procedures as well, lest they become antiquated and ineffective.
4. Purchasing insurance
Every business owner understands the importance of insurance, but for medical professionals it's even more crucial. First and foremost, you'll want to be covered by malpractice insurance. Beyond that, it's likely that the bank issuing your loan will require you to adopt additional coverage, though the exact kind might vary from bank to bank. At the very least, Zetter said, be prepared to purchase malpractice, liability and life insurance policies when planning to open your medical practice.
"You have to start thinking about insurance," Zetter said. "[You'll need] malpractice and general liability. You will probably at least need life and liability insurance, just because bankers will require it."
Step 4: Opening your doors and evaluating practice performance
Congratulations! If you've reached this point, you've already put in plenty of blood, sweat and tears, and haven't seen a dime in compensation for it. But it surely will all be worth it when you get the chance to cut that ribbon and welcome your first patients to your very own practice. It's an accomplishment plenty of healthcare providers don't get to enjoy in the modern medical industry, so pat yourself on the back.
"Once you've got all of this designed and planned, you roll up your sleeves and get ready for opening day," Reiboldt said. "And hopefully, everything is clicking on all cylinders. So that's it: The initial stages of planning, attracting capital and purchasing, then there's the work to get ready to open."
Once your practice is established and running smoothly, you'll want a mechanism for accountability in place. Sure, you've hired an office manager you trust, but how can you really hold them to task, especially if you're busy seeing patients day in and day out? Hire a consultant or an accountant who has experience monitoring medical practices to occasionally review operations and report back to you.
"After you set up a practice, there needs to be oversight of the practice beyond the office manager," Zetter said. "How do you know every dime made it to the bank? You need to check that, so who makes sure that happens? Benchmark your practice and ensure there's oversight."
Considerations to keep in mind
Here are a few last-minute tips to keep in mind while you deal with the whirlwind that is starting your own medical practice. These are things that can either slow or completely derail your progress leading up to the opening day, or take you by surprise when you think your practice is up and running smoothly.
1. Construction needs: If you need to perform any kind of construction on your office space, make sure you start as early as possible. Otherwise, you might find yourself well past your target opening date without a workable space. It's always best to find a turnkey location where you can immediately set up shop, but realistically, such space is not always available. Make sure you evaluate your location early on and determine exactly what work needs to be done, then get to hiring the contractors who will do it. With luck and planning, construction will be complete by the time you're ready to start purchasing equipment.
"There are so many variables if you have to do a fit-out," Zetter said. "It's guaranteed: Construction always delays things. Even if you start planning in January that you'll open in June, be prepared for August [if you have to do construction]."
2. Changing regulations and payer rules: The healthcare industry is a highly regulated one, with complex rules surrounding virtually everything a provider does. For a small practice, which doesn't have legions of attorneys on retainer like a large hospital system does, it can be difficult to navigate the web of legal requirements and payer rules. However, it is extremely important that your practice understands what it takes to be in compliance. In fact, the rules governing the healthcare industry are constantly being changed and updated, so even if you comply today, you'll have to keep an eye on the future.
"There are very specific compliance manners for medical practices mostly tied to government regulations, like privacy with HIPAA, and certainly being in compliance with the way you bill and treat Medicare/Medicaid patients," Reiboldt said.
3. Marketing: With all the necessary preparation prior to opening, and the hustle and bustle of treating patients once you do open, it can be easy to forget about marketing. Marketing and advertising is as fundamental to a private medical practice as it is to a Dunkin' Donuts franchise, particularly for those general practitioners who won't be able to rely on a referral network for their patients.
"One thing you would plan for prior to opening and then continuously do after opening is marketing," Reiboldt said. "This is a patient-caring, disease-treating business, but with that said, it is a business. And a practice needs to know how to market itself." After all, how can you be a successful practice without attracting patients?
4. Advisors: This guide, however informative, is certainly not exhaustive, and no amount of research can possibly prepare you for everything that might happen as you get started. For that, you need real experience, and there are plenty of professionals who have experience in spades. Zetter, who acknowledged that perhaps it seems self-serving, said hiring a consultant with plenty of experience launching medical practices will save you money in the end and help you avoid costly and time-consuming mistakes.
"The biggest advice I can give is [to] think about who are going to be your advisors," said Zetter. "Yes, you will spend more money, but if you do it smart, you will set yourself up for success and spend less in the wrong. You want somebody who wants to be doing business with you 20 years from now when you're ready to retire and sell your practice."
Paul Inselman, a doctor and founder of Creative Coaching medical marketing, listed a handful of advisors and professionals that it's wise to retain in perpetuity.
- Certified public accountant
- Business attorney
- Business coach
- Insurance agent
- Financial planner
- Investment advisor
"Opening a new medical practice will be the most exhilarating and scary thing that you will ever do in your career," Inselman said. "When we coach our clients on opening up a medical, dental, chiropractic or any other healthcare practice, the first thing we advise is to assemble your team.
Editor's note: Looking for medical practice management software? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free: