Melissa Wylie is MagnifyMoney's small business writer. She previously covered business news for Bizwomen.com and the Dallas Business Journal. Melissa graduated from the University of North Texas with a bachelor's degree in journalism.
After finishing medical school or practicing medicine for a number of years, physicians may want to take an entrepreneurial approach to their careers and start a medical practice. Yet this type of enterprise appears to be on the decline: less than half of doctors (47.1%) operated their own practices, the American Medical Association reported in May 2017, while only about one-third of physicians (31%) polled by the 2018 Survey of Americaâs Physicians stated that they were independent medical practitioners or partners.
There are numerous reasons why a physician would want to start a private practice, said David Zetter, founder and senior healthcare consultant at Zetter Healthcare Management Consultants and secretary-treasurer of the National Society of Healthcare Business Consultants. When a physician opens their own medical practice, they have autonomy to run the office how they see fit, and make changes to protocols or expand patient care without having to get approval from management.
âIf they surround themselves with the proper experts to assist them, they can focus on the clinical side,â Zetter said.
In this guide, weâll introduce you to the basic process of how to start a medical practice, from available financing options to extensive legal requirements.
If you want to be your own boss instead of an employee in someone elseâs practice, here are a few steps to follow to get your medical business off the ground.
1. Find financing.
Before jumping into the process, you should understand what financial resources are at your disposal to start your medical practice. You would likely need to obtain a loan or another type of business financing from a bank or an alternative lender. The type of practice you want to open would affect your costs: for instance, a psychiatristâs office likely wouldnât need as much financing because little equipment is required. We will discuss financing more in a later section.
Student loan debt may impact your borrowing power, particularly for recent medical school graduates â 75% of the Class of 2018 graduated with educational debt, leaving school owing about $200,000. The average physician earns $313,000, according to Medscapeâs 2019 Physician Compensation Report, but some practitioners, like public health or family physicians, will likely earn far less, and starting physicians may presumably come in on the lower end of the scale. You could check out our Ultimate Guide to Paying Off Medical School Debt.
2. Decide on your practice setting.
Your practice could be structured in one of the following ways, depending on your priorities as the owner:
3. Get the required licenses.
The owner of a medical practice is required to obtain several licenses, which could include:
4. Find a location.
Search for a location thatâs far from similar medical practices, but still in an area with a moderate flow of traffic. The space should be big enough to store your equipment and supplies, and provide room for the business to grow. You could operate your business in a standalone building or a shared office space. The American Medical Associationâs Health Workforce Mapper could help identify areas with shortages in certain medical specialties.
5. Work with insurance companies.
To accept health insurance, you need to go through the credentialing process with the insurance companies you expect to work with. Credentialing requires you to reach an agreement with insurance companies outlining how and when insurers will pay you. You cannot accept insurance payments from a company until youâve completed the credentialing process.
Insurers would need to verify your professional and educational background, as well as your medical licenses, which could be a lengthy process, Zetter noted â âIf a payer signs up a practitioner that is not legally licensed, they can lose their license to provide insurance.â
If you want to accept Medicare or Medicaid, you would need to enroll as a medical service provider. You can complete the enrollment process online here.
6. Obtain your own insurance coverage.
As the owner of a medical practice, youâll mainly need two types of insurance â medical malpractice insurance and general liability coverage. General liability insurance covers the business, protecting you and your assets from liability. Medical malpractice insurance would protect you and other physicians against claims of bodily injury, medical expenses and property damage resulting from wrongful practices. The price of your insurance policies would depend on the type of practice you operate.
You may also want to consider purchasing:
7. Buy equipment.
Like many aspects of your practice, the equipment you need would depend on your specific area of practice. For instance, you may need exam tables, supplies or X-ray or MRI machines. Equipment financing may be available to help you cover costs.
You would also need to purchase software to maintain electronic health care records, Zetter said. Health care providers rarely use paper records anymore, and most insurance companies require practitioners to submit electronic claims, records and statements, Zetter said. The cost of the software would depend on what you need. If you have a large number of patients or a sizeable collection of data, you may need a more robust â and more expensive â software system, he said. This software could also be federally mandated if you accept Medicare or Medicaid.
8. Hire employees.
Most medical offices have a receptionist or clerical worker on staff. You may need additional staff to handle medical billing and office management. Depending on your type of practice, you might consider hiring nurses and physiciansâ assistants as well.
9. Set your price.
The price of your services would be dependent on market value, as well as Medicare reimbursements and what insurers are willing to accept, but you would still need to decide on the price range. Consider using market research data or hiring an expert to help you determine costs.
Many traditional banks offer small business loans specifically for businesses in the medical industry. Bank of America, Wells Fargo and Chase, for example, have specific lending programs for physicians. You may be able to use your medical degree as collateral, and you could receive favorable rates and terms based on the risk of your business. The American Medical Association has partnered with Mirador to offer practice loans, as well as student loan refinance and home loans for AMA members.
You could obtain financing to cover real estate and construction costs. Equipment financing or leasing would help you either buy equipment upfront or lease assets over a period of time. You could also find financing to help you acquire another medical practice.
A lender may ask for:
Pro forma financial statement. You may need to prepare a pro forma financial statement when applying for financing, Zetter said. A pro forma would outline your plans for the business in great detail to give the lender an idea of how you will manage the business and remain profitable.
âA pro forma is a crystal ball of exactly what is going to transpire,â Zetter said. âIf banks have a medical or dental division, theyâll have no issue loaning money to a physician, as long as itâs managed properly. Theyâll be able to understand that when you provide a pro forma.â
When starting a medical practice, youâll need funding to cover expenses before and after you open, according to Zetter, as it could take three to six months to generate positive cash flow once the practice is up and running. You may want to consider a loan to pay for startup costs and a line of credit for operating costs like rent, utilities and payroll, he added.
Other financing options
Physicians often struggle to understand the financial side of opening a medical practice â a result of their hyper-focused medical training â so the significant amount of money physicians tend to earn could make them targets for people looking to take advantage. Before working with any type of financing institution, make sure the lender has your best interests at heart.
Striking out on your own to start a medical practice can be rewarding, but the endeavor also comes with challenges. Hereâs what you can expect when opening your medical business.
Though physicians may not necessarily receive extensive business expertise during their medical school training, there are resources to help with the business side of their practices. In addition to organizations for medical specialties such as family medicine or pediatrics, here are a few organizations open to most, if not all, physicians:
American Medical Association â As part of its membership dues, AMA offers advice, advocacy and discounts on insurance and other services.
State medical societies â The Accreditation Council for Continuing Medical Education provides a list of state medical societies, which provide support to physicians in their particular communities.
Medical Group Management Association â MGMA provides members, physicians or other professionals involved with practice management, with resources particular to running a medical practice.
American College of Physicians â ACP offers resources to help physicians manage the business and regulatory side of their practices.
Any entrepreneur must weigh the pros and cons of starting their own business. As the owner of a medical practice, you would have autonomy to provide treatment to patients in ways you believe are best. You can also set your own guidelines without waiting for approval from a superior.
But in addition to patient care, you would be responsible for the inner workings of the business, including administrative tasks. You could hire staff members to take on some of the workload, but you may still feel underlying responsibility to remain involved in all aspects of the business.
The financial and regulatory challenges of starting your own medical practice may seem overwhelming, but it could be worth the risk. Consider talking with a consultant or business adviser to help you take the right steps to start your own venture.
âMake sure you donât miss anything,â Zetter said. âThe more time you have, the more apt you are going to be in opening a clean, productive practice.â
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