At a Glance
- Opening a medical practice can be personally and professionally rewarding, but requires a lot of advance preparation
- Create a comprehensive budget, business plan, and strategy
- You might also need to obtain funding, a location, licensing and permits, equipment, software, staff, and professional support
- The key to success is to provide exceptional patient care
Why open a private medical practice?
Opening a private practice has the potential to be tremendously rewarding — both personally and professionally. It grants the freedom to make independent decisions about patient care and practice management. It offers the flexibility to implement your own treatment approaches, set your own schedule, and create a work environment that aligns with your beliefs and values about patient care and company culture.
As a healthcare provider in a private practice, you also have the opportunity to build strong, long-lasting therapeutic relationships with your patients, providing continuity of care and fostering greater trust and efficacy. You can incorporate advanced technologies and equipment and design workflows that optimize efficiency and prioritize patient satisfaction.
Budgeting to start a medical practice
While greater autonomy and the capacity to build more effective patient-physician relationships are attractive, the most pressing concern for many physicians considering opening a medical practice is financial: How much does it cost to start a medical practice? Is owning a medical practice profitable?
“Opening a private practice has the potential to be tremendously rewarding — both personally and professionally. ”
Starting a medical practice can be a costly venture, and it’s important to have a clear understanding of your expenses and how to budget for them. But with careful planning and consideration of a variety of factors, owning your own practice can be very profitable, depending on your speciality, location, services, and reimbursement rates.
It’s important to be prepared for the financial challenges that will arise. By creating a solid budget, you mitigate risk and set yourself — and your practice — up for success.
Follow these steps to create a budget for starting your own medical practice:
1. Determine your start-up costs
Begin by listing all the expenses associated with starting your practice. This includes one-time costs like office space lease or purchase, renovation or build-out, office furniture and initial supplies, legal and licensing fees, accountant fees, technology and software, and equipment and medical supplies. Don’t forget to factor in marketing and branding, as well as any other investments you might need to make to attract and hire staff and to get your practice up and running.
2. Estimate ongoing expenses
Consider the recurring expenses that will be part of your practice’s monthly or yearly budget. These may include rent or mortgage payments, utilities, staff salaries and benefits, medical and office supplies, lab fees, malpractice and health insurance, marketing and advertising, maintenance, medical association membership dues, continuing education for licensure, and any other operational expenses specific to your practice.
3. Project revenue
Estimate your expected revenue based on factors such as patient volume, insurance reimbursements, and service fees. Consider any initial patient base you may have, potential referral sources, and local market demand for your specialty. It’s essential to be conservative and realistic with your revenue projections, especially in the early stages of your practice.
4. Factor in contingencies
Account for unexpected expenses or fluctuations in revenue. Set aside a portion of your budget for contingencies to handle unforeseen circumstances or emergencies. This buffer can provide peace of mind and help you navigate any financial challenges that may arise.
5. Create a cash flow projection
A cash flow projection for a medical practice is an estimate of the cash inflows and outflows over a specific period, typically on monthly or quarterly. It helps medical practitioners and practice managers to anticipate and plan for the future financial health of the practice.
6. Seek professional assistance
If you’re unsure about creating a budget or need assistance, consider consulting with a financial advisor or accountant who specializes in medical practices. They can offer expert advice, help you identify anything you might have overlooked, and provide insights on tax planning and financial strategies specific to your practice and legal business structure.
Increasing the potential profitability of your medical practice
While you might not want to change specialities or locations, a number of strategies can maximize profitability.
Efficient practice management
Improve efficiency and reduce unnecessary costs in your practice operations. Implement online scheduling systems to optimize patient flow, minimize wait times, and maximize resources. Automate administration, such as appointment reminders and billing, where possible.
Optimize revenue cycle management
Collect amounts due from patients at the time of service. Practice accurate and efficient billing and coding. Stay updated on coding and reimbursement policies. Review your claims and payment data to identify anything that may impact your revenue. Consider working with medical billing specialists.
Negotiate contracts and reimbursement rates
Research local rates and leverage your patient volume, outcomes, specialization, and credentials to negotiate with insurance providers. Regularly review and renegotiate contracts.
Focus on patient retention and referrals
Prioritize patient satisfaction and provide excellent customer service for retention and referrals. Implement patient feedback systems, maintain open communication, and personalize the patient experience to foster long-term relationships and a strong reputation.
Expand services and specializations
Consider expanding your services or specializations to attract more patients and revenue streams.
Control operating costs
Review your expenses and identify where you can reduce costs without compromising care. Negotiate with vendors, be energy efficient, and explore group purchasing for medical supplies. Be mindful of overhead expenses and seek cost-saving opportunities.
Adopt technology to enhance efficiency, improve patient care, and reduce costs. Electronic health records (EHRs), telemedicine, and patient portals can streamline, save time, and increase engagement. Invest in secure IT infrastructure and data backup systems.
Marketing and branding
Develop a strategic marketing plan to attract new patients. Use online platforms, social media, and traditional marketing to promote your services and unique value proposition. Differentiate yourself by your expertise, positive patient outcomes, and patient testimonials.
Creating a business plan for your new practice
Once you have a budget, create a business plan. A business plan is a roadmap for your medical practice. Not only is it necessary to secure financing from lenders, but it also provides a strategic framework for management and growth.
Your business plan should include your goals, strategies, and financial projections as well as your target market, services, pricing strategy, and projected income and expenses. If this seems daunting, consider hiring a business consultant or working with a mentor for the Small Business Administration SCORE program.
Here are the most important components of a well-crafted business plan:
The executive summary provides an overview of your medical practice, highlighting its mission, vision, and key objectives. Summarize your practice’s unique value proposition and competitive advantages.
Include a practice description that outlines the specific medical services you will offer and your target patient population. Explain how your practice will address the healthcare needs in your community and differentiate itself from competitors.
Conduct a market analysis of the local healthcare market. Identify the demographics, patient trends, and competition in your area. Assess the demand for your services and demonstrate a clear understanding of your target market.
Define the organizational structure as well as the legal structure of your practice (e.g., sole proprietorship, partnership, or corporation) and provide an overview of your management team. Include the qualifications and expertise of key personnel, such as physicians, administrators, and support staff.
In the services and operations section, explain the medical services you will provide, emphasizing your specialization or unique offerings. Outline your patient care processes, appointment scheduling, and workflow management. Address regulatory compliance, quality control, and patient privacy measures.
Outline your marketing and branding strategy to attract and retain patients. Describe how you will promote your practice, engage with referral sources, and build strong relationships within the healthcare community. Include a pricing strategy, insurance acceptance policy, and plans for patient retention.
Include financial projections, such as financial statements, including income statements, balance sheets, and cash flow projections. You will have determined a lot of these numbers as you created your budget, but including them in your strategic plan is part of creating a full picture for any investors or business partners. Estimate your start-up costs, operational expenses, and revenue projections. Include information on reimbursement rates, insurance contracts, and expected patient volumes. Conduct a break-even analysis to determine the point at which your total cost and total revenue will be equal, and demonstrate the potential profitability of your practice.
In the risk assessment and mitigation section, identify the potential risks and challenges your practice may face. This could include financial risks, regulatory compliance, competition, or unexpected events. Develop strategies to mitigate these risks and contingency plans to ensure business continuity.
Include an implementation plan that outlines the steps and timeline for launching your practice. Include milestones, staffing requirements, facility setup, technology implementation, and any necessary permits, licenses, or credentials. Assign responsibilities and establish a timeline for each task.
Finally, include an appendix with any supporting documents, such as resumes of key personnel, licenses, leases, insurance policies, or market research data.
Securing financing for your new medical practice
Once you’ve created a budget and business plan, you’re ready to secure the financing you need to turn your dream into reality.
There are several avenues you can explore to obtain the necessary capital to get started. Traditional options for financing, such as banks or credit unions, offer business loans tailored to healthcare practices. Government-backed loan programs or grants specifically designed for healthcare businesses can be another good option. However it’s important to keep in mind that government-backed programs can take a lot longer to be approved and delay disbursement of funds. Private investors or venture capital firms interested in the healthcare sector offer a third option for obtaining capital.
No matter what route you choose, it’s imperative to present a strong business case, emphasize your qualifications and experience, and showcase the profitability of your medical practice to greatly enhance your chances of securing the funding required to launch it.
Obtaining licensing and permits for new practices
Once you decide to open a medical practice, it’s a good idea to start obtaining the right national licenses, permits, and credentials. In addition to your medical license and National Provider Identification (NPI) number, you will also need likely need:
Following local rules and regulations
Compliance with local and municipal rules and regulations is every bit as important as obtaining your national licensing and permits. Consider consulting with a lawyer to make sure you don’t miss anything key.
Research licensing requirements for medical practices in your area. You may be required to apply for a local business license, healthcare facility license, or health department permit. Be sure to check if there are any additional permits or approvals needed for specialized services, such as radiology or surgery.
Before signing papers to lease or buy property, check local regulations to confirm that the intended location for your medical practice is zoned for commercial or medical use. Research any restrictions or requirements related to parking, signage, building codes, and accessibility.
Don’t forget to find out about local health and safety regulations, including infectious disease protocols, waste management guidelines, and emergency preparedness requirements. Ensure your practice adheres to standards set by regulatory bodies such as the Occupational Safety and Health Administration (OSHA).
Finally, comply with local employment laws. Be sure you’re fully aware of and compliant with regulations pertaining to hiring, termination, employee classification, wage and hour requirements, and workplace safety.
The credentialing process
Beyond licenses, you’ll also need to undergo the credentialing process that will allow you to contract with and be reimbursed by payers, such as health insurance companies and the Centers for Medicare and Medicaid Services. Unless you plan to use a direct primary care (DPC) model, the credentialing process is critical to processing insurance claims and can take over four months to complete, so start the process as soon as you can.
Additionally, remember that any additional providers that you hire will also need to undergo the credentialing process, so keep that in mind when considering timelines for onboarding.
Once you’ve started the credentialing process, it’s time to find malpractice insurance. When assessing different policies, consider the types of claims the policy covers, and its limits. Adequate coverage should align with the specialty and scope of your practice to ensure comprehensive protection. Factor in the cost of premiums and any deductibles associated with the policy, ensuring it fits within your budget while providing adequate coverage. Additionally, review the policy’s terms and conditions, including any exclusions or limitations, to fully understand the coverage and potential gaps.
It’s important to evaluate the reputation and financial stability of the insurance provider to ensure they have a strong track record of handling claims effectively. An experienced insurance agent or broker who specializes in medical malpractice insurance can help you select a policy tailored to your practice’s needs and risk profile.
Choosing a location for your new medical office
Finding the right location for your medical practice location is extremely important, since it will impact your patient flow and — ultimately — the overall success of your practice. When searching for the right location, consider demographic factors such as age, income, cultural backgrounds, and specific healthcare needs prevalent in the community. And above all, ensure there is sufficient demand for your services.
Look for a location that is easily accessible, visible, and has plenty of parking. Consider proximity to major roads and public transportation, as well as surrounding amenities and services such as pharmacies, diagnostic labs, surgical centers, and hospitals.
When evaluating the quality and suitability of potential buildings and facilities, consider the size and layout of the space, its suitability for medical use, and the availability of necessary utilities, as well as its potential for future growth. Consider factors such as population trends, economic development, and future healthcare needs in the area. A location with growth potential can provide long-term sustainability for your practice.
Finally, don’t overlook personal factors, such as proximity to your home, family, or desired lifestyle amenities. Ask yourself whether your potential location is somewhere that you’re excited about spending a large amount of time and whether you can imagine being there long-term. Opening a practice in an area that aligns with your personal preferences and values plays a huge role in your overall satisfaction and work-life balance, which directly impacts your ability to provide high-quality care to your patients.
Equipment, tools, and technology for new medical practices
Once you have a location, it’s time to set up your practice. Investing in high-quality equipment and technology will enable you to provide excellent care to your patients and potentially help to differentiate your practice from the competition. If your start-up budget is limited and you can’t afford top-of-the-line items for all the equipment you need, it’s important to prioritize the tools that will help you streamline administrative processes and create efficient workflows for you and your staff — without compromising patient care.
For instance, while it might be nice to have electronic blood pressure cuffs, a manual sphygmomanometer costs much less, works just as well, and leaves more room in your budget for business-critical tools like electronic health records (EHR). Not only does a good EHR make your life easier, it can also enhance the patient experience and lead to better care and outcomes by improving efficiency, safety, and collaboration between healthcare providers and their patients. It can also help you see more patients, which over time can help you earn the revenue required to afford other top tools.
Choosing an EHR
An EHR is a big commitment, so prepare. Consider asking an IT professional you trust for help. Remember that while clinical charting is important, the best EHRs facilitate billing and administrative tasks.
Keep these features in mind:
User-friendly: The interface should be intuitive and easy to navigate, with features that promote efficiency and minimize the learning curve.
Flexible: Consider your practice’s workflows and then look for a customizable EHR to meet them. This could mean the ability to create specialty-specific templates, forms, and order sets.
Integrated: Ensure the EHR can work with any other current or planned software or systems. Seamless integration with laboratory, billing, imaging, administrative, and marketing tools can streamline workflows.
Connected: Evaluate the ability to connect with medical devices, such as diagnostic equipment, monitors, and wearables. This can enhance data entry and reduce manual effort.
Interoperable: The EHR should exchange patient data securely and efficiently with other providers, labs, and organizations.
Compliant: Meeting regulatory requirements is key. Consider whether it supports reporting for quality measures, MIPS, MACRA, and other value-based care initiatives.
Secure: How is data secured? Encryption, user access controls, audit logs, and HIPAA-compliant practices protect patient privacy and maintain data integrity.
Supportive: Does the vendor offer training and ongoing technical support? Both are essential for a smooth transition and during daily use.
Scalable: Consider whether the system can handle additional patient volume, providers, and services without compromising performance.
Affordable: Consider the return on investment. Weigh the cost — upfront and for maintenance, upgrades, and support — against the features and potential benefits.
When evaluating EHR solutions, ask for demos, request references from current users, and ask other members of your practice for their opinion and experience. The more information you gather, the more likely your decision will align with your practice’s needs and goals.
Hiring staff for a new practice
You’ve secured funding, obtained licensure, found the perfect location, and sourced the equipment and tools you need to provide outstanding care and run your practice efficiently. Now it’s time to think strategically about staffing your new medical practice.
Begin by assessing the specific roles and positions you need to start seeing patients and bringing in revenue. While it might be ideal to immediately hire a nurse, a medical assistant, an administrative assistant, and an office manager, it might not be financially feasible to do so right away.
Who should your first hires be?
Instead, when building a practice, look for people who are able and willing to provide support across multiple roles. For example, when you’re trying to get your practice up and running and have a limited budget for staff, hire a nurse who can assist you with in-office procedures and who is also willing to help schedule appointments or assist with ordering supplies.
If you do need to ask staff to cross-train, it’s important to be upfront about that expectation and to make sure that you’re not asking someone to do something outside their scope of practice. For each position, provide a job description that clearly outlines the roles and responsibilities.
How to recruit and find talent
Once you’ve determined the positions you want to hire first, leverage your professional network. Post about the openings on your social channels and don’t hesitate to ask for referrals from trusted colleagues or contacts.
When you have a pool of candidates, thoroughly review resumes to identify who best meets the qualifications and requirements outlined in the job descriptions. If they don’t have the exact experience you’re looking for, look for evidence of critical thinking and an eagerness to learn new skills.
Select the candidates you want to interview based on their qualifications and potential fit with your practice. Prepare a list of relevant questions to assess their skills, experience, cultural fit, and professionalism, and then use the same set of questions for all your interviews so that you have a good basis of comparison between the candidates.
Once you’ve selected a candidate that you want to hire, don’t forget to contact the provided references to verify their qualifications, work history, and performance. And always verify a new hire’s licenses, certifications, and other credentials with the appropriate licensing authority to ensure they are valid and current and minimize putting your patients or practice at risk. Depending on local requirements and your specialty, you might also need to perform a background check, including a criminal background check — but be sure to check local regulations before you proceed.
Marketing your practice
The last step to starting your own medical practice is to think about how you’ll market your services. While marketing your practice might not seem like a big deal, it’s essential for spreading the word and attracting new patients for your business.
It’s important to develop a marketing strategy that combines both online and offline approaches. Start by developing a strong online presence through a professionally designed website that showcases your practice, services, and expertise.
“Providing exceptional patient care, fostering positive patient experiences, and maintaining a strong reputation will be the foundation of your marketing success. ”
Use search engine optimization (SEO) techniques to ensure your website ranks high in search results and engage with patients through social media platforms by sharing educational content, patient testimonials, and updates about your practice. Don’t neglect online review websites and encourage satisfied patients to share their positive experiences.
Establishing good relationships with other local healthcare providers, hospitals, and community organizations is a great way to build your patient base through networking events, referrals, and collaborations. And don’t neglect traditional marketing methods such as local advertisements, event sponsorships, and participation in health fairs or community events. Ultimately, providing exceptional patient care, fostering positive patient experiences, and maintaining a strong reputation for your independent practice will be the foundation of your success, as satisfied patients often become loyal advocates for your practice.
Important questions to ask before starting a medical practice
Ultimately, the most important thing you can do to succeed in private practice is to provide exceptional care to your patients. This means being knowledgeable about your specialty and working with your patients to develop a treatment plan that meets their individual needs. To do this long-term and avoid burnout, it’s important to make sure that you have the resources in place that you need to support your journey as a small business owner.
Do I have access to a mentor?
If you don’t have one already, find a mentor who can offer professional support and friendship. Reach out to alumni networks from your medical school or residency program, or consider joining a relevant professional association so you can connect with experienced practitioners who may be willing to mentor you. Medical conferences, workshops, and seminars relevant to your field also provide a great forum to connect with experienced physicians and explore mentorship possibilities.
When approaching potential mentors, be clear about your goals and expectations for the mentorship relationship. Be respectful of their time and expertise, and demonstrate your commitment to learning and professional growth. Remember, mentorship is a reciprocal relationship, so be open to providing value to your mentor as well.
Is there a local professional organization I can join?
When you open a private medical practice, you become a small business owner. Don’t overlook opportunities to connect with other business owners that have nothing to do with healthcare.
Consider finding a business mentor through the Small Business Administration’s SCORE program or getting involved with your local chamber of commerce.
Connecting with other small business owners can help you gain a new and valuable perspective about running a business and managing employees and also help you create a positive presence within your community.
Do I know where to find resources to help manage my practice?
Unlike many business owners, physicians can’t hide behind a product or service, so it’s extremely important to build a positive reputation in your community and to protect it.
Hopefully this guide will help you along the exciting journey ahead of you and towards excellent patient care and growth for your new practice.
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