[Editor's Note: This fantastic guest post about setting up a medical practice startup was submitted by Juli Albright, General Manager of Alamo Plastic Surgery. There is an ever-increasing need for information like this as fewer and fewer docs open their own practices and are now doing so with ever-increasing student loan burdens.]
The Complicated Dream of Owning Our Own Medical Practice
In 2016, after 14 years of post-high school education and training, my husband was graduating from an integrated plastic surgery residency program in Pennsylvania. Our dream had been to open a practice back in our home state of Texas. Initially, we hoped to locate an existing successful practice with a soon-to-be retiring plastic surgeon who would be willing to transition the practice to us. We quickly realized this was much more complicated, and we ran into several common problems:
- Practices overestimate their value, especially to a newly minted surgeon.
- Overhead expenses are higher than a new surgeon can support.
- Branding, reputation, and office culture are already set, and are difficult to change.
- Office space, equipment and PM systems may be poorly maintained or antiquated.
Back to Broke and Geographic Arbitrage
Although we had prioritized and successfully paid off his high-interest medical school loans during residency, our net worth was close to zero. After reading White Coat Investor, I became uncomfortable with taking on a new business loan, especially with an expanding family. Following guidance from WCI, my husband searched for opportunities in the Mid-West where cost of living is low and salaries are high. We moved in July and, three weeks later, had our second child. For three years we continued to live modestly (albeit one expensive car) saving ~40% of our income for retirement and, if the current employment did not work out, a future solo practice.
Starting Up Our Own Medical Practice
In August, after failing to achieve acceptable terms with our previous employer, we started a plastic surgery practice in San Antonio, TX. We utilized a variety of resources to help us start the practice, including books, lectures, blogs, podcasts, colleagues, friends and family. We wanted to share our experience and offer a few helpful tips for others who may be contemplating a similar transition. Although some of our experience will be specific to our location and specialty, we tried to highlight some generalizable pearls. If you need a sample business plan, bank loan presentations, marketing plans, Google Ad help, or have any other questions, please contact us. We would love to help!
7 Steps for A Successful Medical Practice Startup Applying WCI Principles
#1 Cash is King
In 2016, after paying off our loans, our net worth was essentially zero. Obtaining a bank loan was nearly impossible. Most banks wanted to shuttle us into the Small Business Association (SBA) process which has higher fees and can take up to 6 months for approval. Three years later with a much higher net worth, the process was much easier and we had better options. We planned for initial capital and six months of expenses to be self-funded.
However, since the top reason businesses fail is lack of capital, we decided to take out a significant business line of credit. Our bank and banker offered interest-only payments on what was borrowed during the initial two years. After this initial borrowing period, the loan amortizes, and principle with interest are paid back over an 8-year term at a reasonable interest rate and no early payment penalties. We view this line-of-credit as a security blanket to help us adapt to any curveballs.
#2 Expect Curveballs
We expected to have a more balanced plastic surgery practice with a target of 50% cosmetic/50% insurance mix, as my husband enjoys both. However, many of the major commercial insurance carriers in San Antonio were offering PAR Medicare or LOWER in-network reimbursement rates, which ultimately would not be enough to cover overhead expenses. One major carrier even refused to offer a contract, citing “adequate in-network coverage for plastic surgery.” Our business plan relied on initial revenue being primarily from insurance cases. After much trepidation, we decided to proceed as out-of-network for the major carriers and are selectively engaging smaller local insurance plans that offer more sustainable reimbursement rates.
To compensate for this lack of insurance income, we increased our marketing budget to capture additional cosmetic patients. Although, as an engineer, I want everything to go according to a predetermined plan, this is not realistic. If you read Shoe Dog or Jeff Bezos in The Everything Store: Jeff Bezos and the Age of Amazon, you have to continually move forward by making the best decisions possible at the time.
#3 Location
Choosing the right location is critical to a startup practice. The mindset must be one of total commitment. Once you invest in your practice, this will be your home for the duration of your career. Most of the information you need can be obtained for free online, but does take a significant investment of time and lots of spreadsheets. Alternatively, consultants exist that purport to do this research for you, although we did not utilize these services.
Competition
Finding the right location is kind of a numbers game. Ideally, the location should have a limited number of physicians in your specialty given the overall population. Your competitors’ ages, affiliations, and areas of expertise (if known) can be considered as some may be approaching retirement. Who accepts what insurance carriers? Knowledge is key.
Patient Population
Know the demographics of your patient population. Where are the more populated areas and/or prosperous areas? Where is the city’s current growth / future growth? What are rents like in these areas? Where are the surgical/hospital facilities? Where would the office be located relative to these facilities, your home, your spouse’s office, and your children’s schools? The more information you have the better.
Insurance Credentialing and Contracts
Although we did some research on insurance payments in the area, we did not fully appreciate the extent to which insurers would attempt to gouge solo physicians. Even though my husband had a three-year track record of good patient outcomes in another state, insurance carriers were unable (or unwilling) to take this into account. If your practice is predominantly insurance-based, I would recommend starting this tedious process as early as possible (at least six months for credentialing and contracts). However, even this may not be adequate, as some of the carriers informed us that their review process for contract negotiation could take as long as 120 BUSINESS days!
Obviously there are other financial and familial factors to consider, such as COLA, state taxes, family planning, etc. If you have aging parents, you may want to be close to them or have accommodations for them to move near you.
#4 Business Plan
Although this may sound scary to physicians, it is not that complicated… But it is required! Not only will the banks require a sound business plan before issuing a loan, but YOU must also do it for YOURSELF! This business plan is for you to determine if this incredible investment of time/money/effort is worth it. A brutally honest business plan for your medical practice startup will allow you to make an informed decision. The business plan can also be used to compare to other business opportunities or investments.
Basically, project expected capital, revenue, and expenses to determine profit. The numbers will likely change over time and should be adjusted as such (for example, pay raises for employees, interest on your loan, etc). Initially, most of the projected costs and revenue will be estimates gleaned from online sources, such as the Bureau of Labor Statistics. Other data will be from quotes you have obtained for necessary services like malpractice insurance, etc.
A great resource for a business plan template is a physician that has previously graduated from your residency program and started their own practice within the last 5 years or so. You will want to cultivate this relationship anyway as they can be a wealth of knowledge about other things (like hiring practices, EMR, etc).
The business plan acts as your guidepost for starting the practice. Were you only supposed to spend $10k on equipment? If so, try to limit spending to $10k on equipment and don’t be distracted by the new $100k laser machine which is “guaranteed to pay off in 2 years”. Until you have warm bodies through the door, don’t invest in expensive equipment. Stick to the plan!
#5 Website
Website design and development can be an overwhelming process, but the great news is you can start this now. [Be aware, that your ABMS certification board may not allow you to publish your site until after graduation]. Your website is your virtual front door and may be the first impression your patient gets. So it HAS to be done right.
It may be tempting to hire an expensive company to design and host your website. If you do not have a good eye for design or have the time needed to commit to creating one on your own, a one-stop-shop may be worth it. Just understand the costs and common pitfalls that we learned from the White Coat Investor blog on website hosting. Most of these companies will charge you ongoing fees ($1500+ for website hosting and undefined Search Engine Optimization). If you decide to end your contract with the company, you will not own the website.
There are many WordPress templates (~$70) which anyone can easily modify and use. Upwork is a great source for cheap designers (website and logos) and developers (usually ~$15/hr). Most marketing companies will charge ~$100/hr. If you have the time and patience, it can be very cost-effective to design your own website. Additionally, it will be incredibly easy to update the site's content, add new pages, or do whatever you want to it. Remember to keep the site current and fresh for new prospective patients.
#6 Marketing
Develop a marketing plan along with a business plan. Our understanding is, in our specialty, marketing should be ~15% of your overall expenses initially and will typically adjust to about 3-5% of gross revenue over time. A marketing plan for a medical startup should include the following:
- Direct Marketing – doctor referrals (plan on arranging meetings with all the doctors who might refer to you), office signage, direct mail (expensive and may not be advised for a startup), local advertising, etc.
- E-mail Marketing – Mail Chimp, Hubspot (free version), and others offer great training on creating e-mail campaigns.
- Search Engine Optimization (SEO) – Essentially, this means getting to the top search position on Google when someone searches for your specialty in your city. Website content, social media, website traffic, and time are all key factors. This is a good area to get assistance with, as best-practices are always changing. But make sure it fits within your budget.
- Google Ads – This is a wonderful tool for a new practice as it immediately improves your practice’s visibility. There is no getting around the fact that it is expensive. In our space, we allocate ~$1500/mo for our campaigns.
#7 Bonus – Tax Write Off
We set our medical practice up as a professional limited liability company (PLLC) which is a pass-through entity. Since my husband’s first employed job ended in June, we have 6 months to deduct some sizable startup business expenses. This combined with the 199A deduction, means we expect to pay very little in taxes for 2019. Moving forward we will have to earn less to have the same after-tax income. This is a great bonus to living our dream!
It is a wonderful feeling to work for yourself and invest in yourself. Although we know the next several years will be difficult financially, we view this as a long-term investment in our investment portfolio. Although we acknowledge the risk, we also anticipate higher returns than Vanguard mutual funds.
Do you own your own medical practice? What has your experience taught you? Share your story and comment below!
Great post.
Difficult insurers…and Texas is supposed to be one of the easy states.
What a great post, thanks. Would need an update two years from now to see how things change and what you would have done differently.
Best of luck.
Great article.
After nine years working for a large managed care organization, I started my own cardiology practice about two years ago. Setting up a solo private practice is hard work, but well worth it. I’m a happier, less stressed out doctor who can practice and thrive on her own terms.
Heather: Any tips on how to start your own cardiology practice. I’ve been in different practice models after several years and I’m dissatisfied with all of them. I’m thinking on opening my own cardiology practice where I don’t have to go by productivity/RVUs model or running through 4-5 hospitals to see 60 patients a day. I am non invasive. Is office only (no hospital at all) a crazy idea? I thought I can refer my patients who need hospitalizations or special procedures to a trusted colleague.
Thanks!
I’ve got bad news for you. If you’re running your own practice, you will be paid based on productivity (although I guess you could do a Doctors for Patient Care subscription type model) and you may very well have to run through multiple hospitals seeing dozens a day.
I bet you could do an office only practice though if you were willing to have a much lower income. You still have to make enough to cover overhead though.
Great article. Definitely some key points. I would add being careful with partnerships. They can be much like marriages and messy if they don’t work. I’m coming up on my first anniversary of opening a small pediatric practice. It’s a lot of work, but after working for 2 different large physician organizations, wouldn’t change it for the world.
Hello TaTanisha Smith,
Great timing. We have a family member who is currently an employed pediatrician, and is contemplating starting her own solo practice (in the Houston/Woodlands area). She just told us about it this weekend. Would you mind if we get your email or your website (through which she can contact you) to pick your brain? Although many aspects are likely the same as plastic surgery, I would think establishing and running a pediatrics practice would also have its own unique headaches and opportunities. No worries if you’d rather not. Thanks in advance.
I’m more than happy to share my successes and challenges with opening a solo pediatric practice. There are great resources with the AAP within the Section on Administration and Practice Management (SOAPM). She can reach out to me at [email protected] and feel free to check out our website at https://www.abdpeds.com . Looking forward to chatting.
I have a solo interventional spine/pain management practice and my biggest challenge has been insurance re-imbursement rates, all of my payors pay below medicare rates, Aetna pays almost 50% below medicare. Does anyone know of any networks that private doctors can join or any groups that can negotiate rates successfully? Thanks
Yes, there are organizations for this very purpose. Independent practices, small practices, are at a disadvantage with insurance contract rates. But by banding together, you can get a more normal rate, aka 100% of medicaid for example. One such organization is https://apcpky.com/. They might be able to guide you to one in your city or you could google it. Good luck!
I don’t know anyone that accepts anything less than Medicare. Why don’t you tell them to shove off?
More like this please! Information on starting your own practice is relatively scarce these days. These articles are needed.
The guest post submission door is always open to good posts like these.
Thanks for the comments! We will be sure to do a follow up in a couple of years!
Thanks for a great post! I am a first year medical student, and this has been something I have been interested in ever since deciding to attend medical school. I’ve heard obtaining a good lawyer and accountant can be well worth the investment when you start up a solo practice. What are your thoughts on that? Also, what are your thoughts on moonlighting with your extra time to cover the bills while getting a sustainable clientele? Does that cause problems that I’m not seeing?
Sure, that all sounds smart.
Hello Jonny,
You are wise to be considering these important questions so early in your medical journey. Most, probably don’t, and that probably leads to a lot of unnecessary heartache. Now, all that being said, I would suggest spending most of your efforts on excelling in Med School, so you can get into the residency program that you want, and is best for your future career.
We felt that, although the lawyer seemed a bit expensive, having a reliable source to discuss our business model in person and in the community where we were going to practice increased our comfort level. I have spoken to other people who established there business on the cheaper side, and did fine. If you are trying to join a practice or have partners, then a lawyer creating the business is a MUST!
Moonlighting… Traditionally, this is something people are doing during their residency training. The resident will cover call in an ER or covering in-hospital patients, as an MD, although they have not finished a residency yet. It can bring in some extra income, particularly if you have children ($$$). However, my understanding is that many surgical residency training programs are starting to ban moonlighting. So do your research and ask those questions when you interview for residency positions.
For starting the practice, if you mean covering ER cases at night, then you really are just “doing your practice”. You may need to have insurance contracts, be out-of-network, or try to see if the hospital will pay you for call (whether you collect anything from billing or not). Not all hospitals will do this. You have to figure patient follow up on these patients. Will you see them at your office, and who will pay for that. Will they fit in with the clientele you want at your office. All things to consider.
But, for now, try to focus on your schooling. And good luck!
Thanks for your response Dr. Albright! I will for sure focus on my studies more than anything else. I love hearing about how physicians run their practices, not only from a financial perspective, but from a patient care perspective. This is not always the case, but for many, a well run practice results in happy, well taken care of patients.
What an excellent resource for us Drs thinking of opening a private practice. I have emailed you as well as I would be very grateful if I could get some help in the business plan models or bank letters. I have save come cash because I would like to minimize borrowing but still understand the point of having sufficient capital and might need that line of credit as well. Looking forward to hearing from you soon.
Great post. Does anyone have a good resource for how to value a private practice? Specifically what the EBITDA multiplier should be for a solo medical practice? That seems to be the trend now for valuation. I think there is some variation in dental vs medical as well. This is a crucial point when considering buying or buying into a practice. I have heard 3.5x but data is scarce online from my searches
Bringing on a podcast guest soon to discuss.
Did this podcast come out yet?
I can’t remember which one I had in mind when I made that comment four months ago, but looking at the list of podcast titles over the last four months, I don’t think it’s there. Maybe it is coming up. Or maybe the guest fell through. Sorry!
There is no one answer.
If its a big investment firm trying to but a large solo or a multispeciality practice, they would look into formulas etc. For a solo practice, the value is in the buyers eye. We have refused to buy a solo persons practice as we knew he would retire in 6 months and we will get most of the business. We have also bought another practice and pay the physician 30% of net revenue from his clinic for next 3 years. So it depends!
Are there resources to look into when starting a solo private practice? I frequent this site and have some more years before I go out on my own. Any books / ppts / credible and practical sites would be GREATLY appreciated! Yours truly, KH
The one that has given me some insight would be josh’s personal mba…
Hello Hanson,
Not many that are all-encompassing. There is a new version of a book: The Business of Plastic Surgery. I think it already came out or is soon to be in-print. We utilized the old version. (We have no financial interest in the book, FYI). I think it’s a good primer.
Use all resources available. Talk to private practice people you or your attendings may know. Relatively recent graduates from your program (say within 5-10 years), would be excellent resources. They will be a wealth of information.
ASPS offers Practice Bootcamp as well as Senior Residents Conference. These are add-on courses at the annual meeting, and are well worth the time and effort to attend. You should go to those meetings well prepared to absorb the information (if you are not ready, then you may miss some of the important details, or at least details you may not have thought were all that important at the time).
Realize that plans may need to change and be flexible. It takes months and years to piece things together. We are still learning and trying new things. But the challenge should be exciting (even if it is a wee bit terrifying…).
Good luck!
We’ll try to run guest posts on the subject as we get them. Be sure to search the site.
Came back to this after the update was posted. You’re absolutely correct about difficulty getting into existing practices. Even in Emergency Medicine one of the biggest issues is private groups vs CMGs. And for many of us, the cost of getting into a private group is too high, creating room for CMGs to thrive.
Very encouraging that you guys were able to tackle all these obstacles, though. I’ll come back to reference this if/when my SO decides to start her own practice.