How to Open a Medical Practice
January 2, 2023 | Last Updated on: January 24, 2023
January 2, 2023 | Last Updated on: January 24, 2023
Starting a medical practice can be an intimidating prospect, but it doesn’t have to be. Having the right foundations in place and staying organized can help you set up your private practice efficiently, enabling you to give the best care possible to your patients. However, there are a lot of risks involved as well, and it is important to understand exactly what opening a medical practice will entail before investing time in the process. Indeed, the American Medical Association (AMA) reports that the number of physicians working in a private practice has been falling, and there are many threats and difficulties faced by doctors opening their own practices.
From understanding the legal requirements for setting up a practice to forming key relationships with suppliers and vendors, there’s much involved in opening a successful medical office—and this blog post will provide all the essential information that you’ll need along the way. Here’s what we’ll cover in this article:
It is not easy to establish one’s own medical practice from the ground up. You are accountable for every decision that has to be made along the road, from drafting the company strategy to handling the credentialing process to selecting appropriate administrative procedures.
It is essential to carry out enough study in order to guarantee that one is well-organized and well-prepared for the various responsibilities that lie ahead. For instance, the process of acquiring credentials can take over six months, so you will want to get the ball rolling as early as possible in the process.
A business plan is an estimate of your projected income, costs, and debt over a period of three to five years. You will present it to potential financiers in order to assist acquire money.
It is vital to be as specific as possible when preparing your plan, both to alleviate any potential reservations about your practice that the lender may have, as well as to assist in drilling down into the nuts and bolts of what your practice genuinely needs to be successful.
Your business strategy will contain the following components:
Executive summary: This will include the most important information about your practice, such as the name, location, and services that you want to provide.
Your mission statement, which answers the question of why you wish to launch your clinic, will also be included. What are some of your most far-reaching ambitions?
The primary goals: Who exactly are you dealing with? How many patients do you see each day? Where do you see yourself in the next five years? What are your demographic groups? What sort of patient care you will provide?
Budget: Make a list of all of the costs that you anticipate incurring. Begin by gathering the fundamental items that are needed to get your practice up and running.
You are also able to take into consideration any extra purchases that you want to make once your business begins to gain momentum. Don’t forget to include everything, from the cost of office supplies to the fees associated with processing credit cards.
It is important to use moderation when calculating the expenses of products such as office equipment or furniture.
For example, there is no need to purchase the costliest office chairs when you are just getting started. A business owner should put off spending money on things that aren’t necessary until they’ve established themselves.
Forecasts of income and need for funding: Prepare an estimate of your anticipated revenues and costs for the first three to five years of operation. Predict staffing costs, in-house facility costs, and other expenses.
SWOT: Conduct research on the specific segment of the market you operate in and make a list of your company’s advantages, disadvantages, opportunities, and threats.
Keep in mind that the estimates you make for your costs in the primary care sector may change over time. One possibility is that the interest rate on your loan will go down, while another is that the price of your medical supplies will go up.
After you have finished writing your business plan, the next step is to send it, along with your request for a loan, to a number of different financial institutions.
Find out if any of them have a medical department. Due to the peculiar nature of their financial circumstances, medical professionals may have a difficult time obtaining conventional bank loans in order to finance their practices.
Even though physicians have a high potential salary in the future, many of them are still considered dangerous borrowers since they have debt from medical school.
Lenders with expertise in the medical industry are used to the peculiar financial dynamic that we will discuss. Pick the method of funding that gives you the most favorable conditions, whether that be the shortest repayment period or the lowest possible interest rate.
If you have debt from medical school, this may also be an excellent moment to investigate the possibility of refinancing your student loans or paying some of it down if possible.
In order to begin your workflow, you will be required to complete a lot of documentation and apply for a variety of certifications and permits. This includes but is not necessarily limited to the following items:
Incorporating your company as a legal entity is something you’ll need to do if you want to run a successful business. It is possible to pick from a variety of business entity kinds, each of which comes with its own set of tax advantages, legal responsibilities, etc.
If you need assistance determining which option is most suitable for your practice’s requirements, you should speak with a lawyer and/or an accountant.
Obtaining a Tax ID In order to run your practice successfully, you will be required to get a tax ID or employer identification number (EIN).
As a physician and owner of a company, it is essential for you to have both commercial liability insurance and medical malpractice insurance. Malpractice insurance can be incredibly costly so you will need to look into malpractice insurance carefully. It is easily one of the most important steps in starting a medical practice. The American Medical Association (AMA) reports that 1 in 3 physicians has been sued, while 1 in 2 will be sued by age 55. As such, you can see why malpractice insurance is important.
In addition, your lender will most likely need you to provide evidence that you are covered. You may also want to think about purchasing other kinds of insurance, such as disability or workers’ compensation, for example.
You will be required to submit an application for licensing from the state. The requirements are different in each state, so you will want to research the requirements carefully depending on which state you plan to open a practice in.
In order to prescribe medication, you will be required to register with the Drug Enforcement Administration (DEA). DEA numbers are assigned to healthcare providers in order to regulate and track the prescription of controlled substances. While there are certain antibiotics that are not considered controlled substances – and therefore do not require a DEA number – you will likely need to register for a DEA number.
Additionally, even if you don’t typically prescribe controlled substances, having a DEA number can make it easier to accept certain patient insurances. Pharmacies also typically use DEA numbers when identifying the prescriber. Thus, it is typically best to open your practice with a DEA number in order to make sure things run smoothly.
Depending on the kind of practice you run and the services you provide, you could be required to get additional certifications. For instance, accreditation from the Clinical Laboratory Improvement Amendments (CLIA) program is necessary for in-office labs.
If you want to take insurance, you need to be credentialed with each insurance company. This is required in order for you to be able to accept insurance. Because this procedure might take as long as six months, it is essential to get started as soon as possible. Meanwhile, make sure to open a bank account for your practice.
Your medical license, employment history, evidence of malpractice insurance (which varies by state and specialization), and information about your medical school and residency will be requested by the insurers.
After that, you’ll have to engage in contract negotiations with your insurance over the terms of payment.
The next thing you need to do is decide where your work will be situated. The local competition, the availability of parking, and the pros and cons of operating out of a multi-use location as opposed to a standalone clinic are just some of the aspects that should be taken into consideration in this situation.
If there are any renovations that need to be done, you will need to include that in your estimate of when you want to launch the business. Make sure to figure out exactly what renovations will be needed upfront. You don’t want to end up in a position where you have to spend a lot more money than you initially intended to open up.
Getting your physical practice up and running properly requires the following steps:
Be sure to also have any renovations or layout changes approved by the landlord before signing the lease. You don’t want to end up in a position where you can’t make the changes you need to.
Next, you will need to invest in medical equipment, office supplies, and practice management software to assist you with essential administrative tasks like appointment scheduling and client invoicing. Ensure that you get the following:
Office equipment: You will absolutely want a computer, a photocopier, a fax machine, a phone, internet access, as well as a desk and chair for the reception area.
Software for managing medical practices: The effectiveness of your office will be directly correlated to the quality of the practice management software you use.
Crucial tasks such as scheduling, medical billing (it is important to note that it is also possible to outsource billing to a third-party organization), reporting, insurance verification, and fee schedule dissemination will be made easier with the right software. You don’t want to waste your valuable time on repetitive tasks that could be automated. This is less time you can spend working with patients and on other practice matters that need your attention. The more you can automate, the better.
Additionally, you will want to consider software that features a patient portal as well. That way, those who utilize your services can access their information safely and communicate with you. These sorts of systems are becoming quite popular among healthcare providers. It is important to ensure you are keeping up with the times.
Electronic health record (EHR) system: you will most certainly want an EHR system in order to assist you in organizing the medical records of your patients.
It is important to confirm that your EHR system and practice management system can communicate with one another by integrating with one another, so you should try to choose them at the same time.
Remember, choosing a good software upfront is incredibly important because transitioning later on can be extremely difficult. Migrating to a new software after you are already a well-established practice with a large client base is incredibly challenging and can be very frustrating for patients as they try to get used to a new system and deal with the inevitable downtime it entails.
Additional software options: Services such as credit card processing and medical transcription software are examples of other software solutions that you may want to consider.
When you’ve finished setting up your technology, it’s time to turn your attention to promoting your practice. You are going to have to inform prospective patients that your medical office is now open and ready to do business.
When it comes to marketing your medical practice, there are several different aspects to consider:
Make a website: Developing a website will be one of the most crucial components of the marketing efforts you put forward for your company. This is a chance for you to really explain your practice and everything you offer. You should include bios on all the physicians working in your practice, their credentials, and what services they offer. You should also have a way for individuals to contact your practice through your site, including a phone number and an online inquiry form.
Digital advertising: SEO, Google Ads, social media marketing, and content marketing are all examples of digital advertising.
Direct marketing and marketing through email: Campaigns through email and direct mail are two methods that may be used to effectively spread the news about your new practice.
The third phase is to make definitive judgments about the day-to-day operations of your practice.
For instance, how much are you going to charge for the services that you provide?
What will the office policies be if you are going to be recruiting staff members?
What strategy do you have in place to manage employee contracts?
Even though the aforementioned actions may not seem to be as crucial to the success of your company as some of the more substantial issues that were mentioned before, their implementation might be the deciding factor in whether or not a company is able to function normally or not.
You will want to build out a good team of staff members to handle reception services, client scheduling, billing, and other administrative tasks early on so that you can run a smooth operation out of the gate (many of these roles can be combined and completed by one person, especially early on). You want to make the patient experience as seamless and easy as possible – the better your administrative team is the easier this will be.
The amount of capital you will need to open a new medical practice varies greatly depending on the type of practice and its location. Some practices require very little initial investment while others may require hundreds of thousands of dollars or more.
Reach out to other specialists you may know that run practices to see if they might be able to provide any guidance on what you will need to get started. Experience is the best form of learning. Then, discuss with your accountant to determine how much money is needed to launch your business, including all necessary permits, licenses, equipment purchases, and other expenses. Additionally, you may need to secure backing from a financial institution in order to open your practice.
Finally, you will have to account for the cost of any unexpected expenses that may arise once your medical practice is up and running. Make sure to plan ahead and include enough allowance in your budget for unforeseen costs such as marketing, supplies, and payroll.
By taking the time to research and plan for the opening of your new medical practice, you can set yourself up for success in the long term.
Make sure to create a comprehensive budget and consider all aspects of what it takes to run a successful medical practice before getting started. With careful planning, your business will be positioned to thrive.
When opening a medical practice, you can expect to go through a lengthy process of planning and preparation.
You will need to research the legal requirements for setting up your practice in your area, obtain necessary permits and licenses, purchase or lease office space, acquire necessary equipment, hire staff members, set up an electronic health record (EHR) system, create a website, and promote your practice.
Additionally, you may need to secure financial backing from a bank or other institution in order to open your practice. Once all of these steps have been completed, you may begin offering services to patients.
Depending on the size and scope of your medical practice, it can take anywhere from several months to even multiple years to make all of the necessary preparations.
Opening a new business in medical practice can be an expensive endeavor. As a result, it is unlikely that you will be able to start your practice without some form of financing.
Fortunately, there are various financing options available for individuals looking to open a medical practice. Business loans, lines of credit, and other financial instruments can provide the money needed to pay for start-up costs such as equipment, office space, staff salaries, and more. As noted previously, it can be difficult to get some of these loans on account of the fact that medical practices are seen as inherently risky. So, be prepared to get turned down and stick with it. Perseverance is key when trying to find the right loan.
Term loans are a type of loan that has a fixed interest rate and a repayment period. These loans usually require collateral in order to secure them, however, they can offer larger sums of capital than other forms of financing.
They are typically used for large investments or expansions where the borrower needs the money upfront in order to make the investment happen.
When taking out a term loan it’s important to consider how long it will take you to pay back the debt, as well as if you will have enough cash flow to accommodate payments while still running your business effectively. Term loans come with a lot of options and nuance, meaning you will want to carefully study the terms of any loan you are offered (it is typically best to have a qualified legal representative take a look at the terms so that you know exactly what you are agreeing to).
A line of credit is another option when seeking to finance a medical practice. A line of credit is different from a loan in that it gives borrowers access to funds up until an agreed-upon limit is reached.
Once this limit has been surpassed then no more funds are accessible until the debt is repaid by the borrower. Once the debt is repaid the borrower can then access the funds in the line of credit again up until they reach the limit again. This type of financial instrument allows for flexibility since borrowers can decide when or if they need additional funds during their start-up process and beyond. In essence, it provides quick and easy access to capital at any time because it stays with you long-term (i.e. you don’t have to apply for a loan each and every time you need to borrow money).
However, lines of credit typically carry higher interest rates than term loans do, so it’s important to do some research before settling on this option.
In addition to term loans and lines of credit, there are other financing options available for those who want to open a medical practice.
Small Business Administration (SBA) loans are a very popular resource for individuals looking to open a medical practice. SBA loans will almost always offer borrowers the best possible interest rate and they are backed by the federal government, thereby reducing risk for the lender. While the wait time to have one fully processed and funded can be anywhere from two to three months, the wait can be well worth it.
Traditional bank loans are another resource for borrowers. Many lenders now offer loans that are specifically tailored for medical practice financing, including Wells Fargo and U.S. Bank. By having specialized loans and preset procedures for assessing risk, they are able to offer some of the lowest rates and best options for borrowers.
That said, just like any other traditional bank loan, these loans are very difficult to get approved for. Borrowers have to show that they have an excellent financial and credit history. This means that they are out of reach for many individuals, especially those who have only been out of medical school for a few years and do not have a long-term earning history or track record.
You can also try to access grants when you are trying to start up a medical practice. There are many areas of the United States that are currently underserved by the medical community and where there is a lack of certain specialists and other qualified medical professionals. These are typically the areas where you can find the most incentives being offered to individuals looking to open up a medical practice. It is something to consider if you feel like you need outside funds to get your practice off the ground and running.
Lastly, crowdfunding sites allow individuals to raise capital through campaigns created on their platform which involve contributions from friends, family members, and strangers alike who support your project based on its merits. However, this requires careful campaign planning ahead of time in order for it to be successful.
Overall, there are several financing options available for those looking into opening a medical practice depending on what works best for them given their individual circumstances and goals for their venture.
It’s always important that entrepreneurs conduct thorough research before committing themselves financially since each financing route has its own benefits and drawbacks which should be considered carefully.
There is no doubt that starting one’s own medical practice is hard work. It requires long hours and dedication, as well as real medical know-how and professionalism. However, with the right approach, it is a very achievable goal. There are hundreds of thousands of successful medical practices in the United States, and there is no reason yours couldn’t be one of them. With careful planning and hard work, your practice can provide quality healthcare services to patients for many years to come. Good luck!
As one of the premier alternative lenders serving the small business community, Biz2Credit is dedicated to supporting small businesses across the nation through access to funding and informational resources. Here at the Biz2Credit Blog, we continue to post new content each day for our readers covering the latest information on small business trends, operational techniques, financing, and more. So, be sure to keep checking back here for all the latest information.