Decades ago, most doctors graduated medical school and opened their own practices. These days, however, it’s more common for young physicians to take jobs working for large health systems or hospitals. The number of physicians in solo practice was just over 17 percent in 2014, down from more than 40 percent in 1983, according to a recent report from the American Medical Association.
Hardly any doctors start their own practices anymore, in part because the business side of it is daunting, notes family physician P.J. Parmar on KevinMD.com. And yet, there seems to be a movement driven by younger generations towards a small business, “shop local,” more personal approach to commerce—and medicine. Are small, physician-owned practices making a comeback? Here’s what’s involved in starting your own practice.
Most doctors go into the profession to practice medicine, not to run a business. But opening a solo or small group practice requires being an entrepreneur. That means developing a business plan and basic business skills related to finance, operations, hiring, and marketing, among other things.
The good news is, you don’t have to go it alone. In fact, you shouldn’t. A good accountant, lawyer, practice manager, and/or health care consultant can save you time, money, and headaches. You don’t necessarily need to hire all of these people, or all at once, but it’s worth hiring a health care attorney for starters to advise you on choosing a legal business structure, recommends personal finance site NerdWallet. This will determine how you pay taxes and to what extent you’re personally liable for lawsuits, debt, and losses. Most practitioners form S corporations, where they only pay taxes on their personal income from the business, according to the article.
An attorney can also help review all the contracts you will be entering into as a business owner, from leases to employee agreements.
Very few people can start a business without help from a lender. This is especially true for doctors, who may be saddled with medical school loans. Undercapitalization is the number one reason for business failure, reports practice management consultancy MBA HealthGroup.
However, young doctors with school loan debt and no assets might not have much luck getting a loan from a local bank, as one doctor found, reports MomMD.com. She tried a commercial bank next but was also declined. An ad in a medical journal led her to a lending company, which approved her for a loan and gave her a check to cover her startup costs.
Even with her student debt, Dana Cohen, M.D., got a loan backed by the U.S. Small Business Administration, she told NerdWallet. To determine how much you’ll need to borrow, consider your anticipated expenses, including real estate, consultant fees (attorney, accountant, etc.), and equipment (computers, medical records software, office furniture, and medical supplies).
Healthcare Finance News recommends taking out a line of credit for more than you’ll need — for example, get a $200,000 loan (double what’s needed for most startups) — “so you will have the confidence to make good business decisions without worrying too much about short-term cash flow.” “Most practices can pay off their loan in less than five years with earnings above what they would have earned in similar employment,” the site reports in the article, “The economics of private practice startup.”
Location, location, location
Finding a good location for your medical practice can be one of the toughest parts, say doctors who have gone out on their own. Real estate can be expensive, especially in desirable, highly visible areas, which is key to the success of new practices. “Rent, don’t buy, until you are sure you’re staying,” advises Linda Girgis, M.D., in Medical Practice Insider.
Cohen’s first practice failed because she wasn’t bringing in enough patients to pay her expensive New York City rent. She opened her next practice in a commercial space she shares with another physician, and she also cut costs by having a massage therapist rent out the office on weekends and evenings.
Outfitting your office with equipment, furniture, supplies, etc. can also be costly. Girgis finds better deals on Amazon.com than from medical supply stores. And if possible, look for an opportunity where you don’t have to start from scratch, such as buying into a practice that’s expanding or taking over for a retiring doctor, recommends NerdWallet.
The ins and outs of insurance
If you plan to accept health insurance, you’ll need to go through the credentialing process. This can take several months. First, determine what the major insurers are in your area—Blue Cross Blue Shield, Aetna, and UnitedHealth are among the largest private insurers in the U.S. Depending on your specialty and geographic location, you may want to consider participating in Medicare and Medicaid as well. Insurers will typically consider your medical education, licensing, and liability coverage, among other factors. Not all states require it, but purchasing malpractice insurance is smart and not something to skimp on, recommends Girgis. Contact your state medical association for more information.
This is just the tip of the iceberg when it comes to starting your own medical practice. In an upcoming post we’ll cover staffing, marketing, and patient education that can benefit your practice while helping you avoid the burnout that’s common for doctors in private practice. Ultimately, the decision to become an employee or an owner is up to each individual, but doctors who’ve taken the plunge, like P.J. Parmar, say, “It is much more fulfilling, financially rewarding, and flexible to run your own business.”
Stay tuned for part two of this post, where we’ll cover staffing, marketing, and other important practices!
For more information about running a successful medical practice, check out the Practice Management section of our archives.