Starting your own medical practice is an exciting way to take the practice of medicine into your own hands. However, it’s also complicated and challenging. For your medical business to be successful, you need a clear and detailed plan at the outset to keep things moving on schedule. This step-by-step guide can help you start a private medical practice, from obtaining funding to welcoming the first patients.
How to start a medical practice
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, is aware of the pitfalls and challenges, and can advise you on medical malpractice insurance and workers’ compensation. After all, the specific details of starting up vary by specialty, and some laws and regulations differ by state.
A professional consultant 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 a turnkey location. Overall, however, many common items must be on your checklist when building a practice from the ground up. Here’s how to start a private medical practice, step by step.
1. Obtain funding.
With so much to do, you might be asking yourself where to begin. In a word – financing.
The actual dollar amount needed depends 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, founder and president of Zetter Healthcare 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. [See our recommendations for the best payroll providers.]
“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?
2. Create a pro forma.
To figure out your financing, make a pro forma. A pro forma is the lighter version of a full-blown business plan, with revenue and debt projections grounded in reality. In your pro forma, account for all your medical clinic expenses, debt and anticipated revenues. Bankers can tell which 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 if you’re going to pursue a bank loan. A strong pro forma will project at least three years into the future and 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 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, Buying, and Owning a Medical Practice, 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.”
Here are some financing tips.
- Find the specialists. Submit your pro forma and loan request to the medical/dental division of the bank, if it has one. This division specializes in the healthcare industry and understands the risks, expenses and revenue models of that sector.
- 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. Decide which terms are most important to you – interest rate, amortization schedule, etc. – and make your selection based on those priorities.
- Stay conservative. When creating your pro forma, take 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; right now you should focus on setting yourself up for that success.
- Use the waiting period wisely. While the banks review your pro forma and considering whether to approve your loan request, 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, filing articles of incorporation, obtaining a tax ID, buying liability and medical malpractice insurance, and credentialing with your payers.
The best business loans can help finance your medical practice.
3. Purchase equipment and staff your practice.
Once you’ve obtained a loan and opened a line of credit, you’re ready to start hiring your team and purchasing the office and medical 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 aspects you’ll want to consider.
Electronic health record systems
Electronic health record (EHR) systems, also known as electronic medical records (EMR) systems, are essential 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 serves as a one-stop shop for your patients’ records and histories, communications with other providers, lab and prescription orders, and information on your revenue cycle.
Editor’s note: Looking for the right electronic medical record system for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.
Moreover, you’ll need a well-functioning EHR system to qualify for federal incentive payments. Learn how to choose an EHR/EMR system and see our recommendations for the best EHR/EMR medical software.
Practice management systems
Your practice management system (PMS) is the lifeblood of your practice. Integrated with your EHR system, practice management software keeps track of all your front-office information and facilitates operations. Chief among its uses is conducting and monitoring billing and collecting.
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.
Medical billing services
You can always outsource your billing to a third-party company. You’d still need a practice management system, but at least your staff wouldn’t have to deal with overseeing the billing process. Not only is submitting claims time-consuming and complex, but your team 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 potential downsides with a third-party biller to consider as well. For information on choosing a vendor that meets your needs, visit our guide to the best medical billing services.
Medical transcription software
Think about how medical transcription fits into your practice. There are typically three ways a medical business 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.
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 know and be able to trust your staff, which means employing a background check system.
You’ll be interested in candidates’ 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. Failure to ensure your staff is properly credentialed could result in big problems for your practice. Visit our guide to choosing a background check service to find the right provider for your practice.
Credit card processors
Although you’ll be making most of your money through payers like insurance companies and Medicare, your practice will need a credit card processor for when patients need 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. You’ll want to select a credit card processing company that offers additional security and participates in the American Medical Association’s Member Value Program, which partners with vendors to provide discounts and perks to medical practitioners. Discover the best credit card processors that can aid your practice.
As you assemble your front-office team, you’ll need a reliable office manager to run the day-to-day operations of your practice. This person must be responsible and dedicated, but those qualities aren’t enough. You’ll need someone who also has 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. “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 delivering an honest appraisal of how your practice is running.
Ensure your office is set up with one of the top business phone systems to help manage daily operations.
Consider any ancillary services you may want to offer your patients based on your specialty and their needs. These services could be a great way to make some extra money, as well as to differentiate yourself from the competition and keep your patients happy.
For example, Reiboldt said offering a service such as bone density tests on-site might be in your best interest, even though the necessary medical equipment and training for staff represent an additional expense. Additionally, certain EMR and PMS providers such as CareCloud can give you tools to build an e-commerce arm into your medical practice. Read our full CareCloud medical software review to learn more.
“Many specialists and some primary care providers will want those ancillary services,” Reiboldt said. “Why? It’s a convenience thing for the patient, No. 1, and secondarily, it adds income to the practice, but it also adds expense.”
4. Prepare to open.
You must complete several logistical steps before you can open your doors, and they should be carried out in conjunction with the preceding actions. Give yourself plenty of time to get incorporated as a legal entity, obtain insurance and establish policies and procedures before you launch. Credentialing, for example, can take quite a while and depends on the pace at which other organizations operate.
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. If you don’t incorporate, you’ll open up your personal assets to the threat of a lawsuit.
Moreover, 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, do your research on each type of entity and the potential advantages it offers your practice. To figure out which business entity is right for you, read our articles on choosing the best legal structure for your business and the process of becoming a corporation.
Credentialing physicians with payers
You will also need to get your practice’s healthcare providers credentialed to submit claims to the payers you’ll be working with. The credentialing process can take up to three months, but you may want to give yourself up to five months 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 and attestations. It’s a time-consuming process, but certain medical billing services such as CareCloud can handle it for you. Read our full CareCloud medical billing review to learn more.
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 vital to 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 to make sure they don’t become antiquated and ineffective.
Every business owner understands the importance of insurance, but for medical professionals, it’s even more crucial. First, you’ll want medical malpractice insurance coverage. Beyond that, the bank issuing your loan will likely require you to adopt additional coverage such as workers’ compensation. “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.”
5. Open your doors and evaluate practice performance.
Congratulations! If you’ve reached this point, you’ve put in plenty of blood, sweat and tears and haven’t yet seen a dime in compensation for it. But your labor will all be worth it when you get the chance to cut that ribbon and welcome your first patients to your very own medical 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 your practice is established and running smoothly, you’ll want to put a mechanism for accountability into place. Sure, you’ve hired an office manager you trust, but how can you 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.”
Medical practice considerations to keep in mind
Here are a few things to keep in mind while you deal with the whirlwind of starting your own medical practice. These are issues that can slow down or completely derail your progress leading up to 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 construction on your office space, 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 those spaces are not always available. Evaluate your location early on and determine how much work needs to be done, then start 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 that doesn’t have legions of attorneys on retainer like a large hospital system does, it can be challenging to navigate the web of legal requirements and payer rules. However, it’s extremely important to understand 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’re in compliance right now, 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 and Medicaid patients,” Reiboldt said.
For example, HIPAA requires all healthcare IT products to abide by a certain level of security standards to safeguard patient data, which has become especially critical as digitization of the healthcare industry has increased, as has the likelihood of cyberattacks. It’s your job to ensure that every product you select meets HIPAA standards. Learn more about HIPAA and medical records retention.
SRFax is one of the best online fax services for medical practices because its communication technology adheres to HIPAA regulations.
With all the necessary preparation for opening day, followed by the hustle and bustle of treating patients once you do open, it can be easy to forget about marketing. Marketing and advertising are as fundamental to starting a private medical practice as they are to any new business, particularly for 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?
This guide for launching a medical practice, however informative, is certainly not exhaustive, and no amount of research can 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 said hiring a consultant with plenty of experience opening 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 the Creative Coaching medical marketing firm, 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.”
5. Meaningful Use standards
The healthcare industry has been undergoing a period of digitization, largely focused on the adoption of EMR and practice management software. Now known as Promoting Interoperability, the Meaningful Use standards prescribed by the Centers for Medicare & Medicaid Services lay out exactly what is expected of a medical practice’s use of an EMR system. You have to not only ensure that your EMR vendor is capable of meeting these demands, but that you implement the technology in such a way that your medical business is functioning up to the required standards. Otherwise, you could face reimbursement penalties.