Going solo: Start-up basics
By Ken Terry
Here's what to expect in terms of time, money, and staff if
you're going to go it on your own.
If you've never run a business before, the complexities of setting up your
own practice may seem daunting. One way to reduce the fear factor is to retain
a consultant. That will probably set you back $5,000 to $10,000, but the advice
you get should more than make up for it.
Start planning for your leap into the unknown six to nine months before you
make the move. That will give you time to locate the right space in the right
location and have it renovated, says Gray Tuttle Jr., a consultant in Lansing,
MI. It'll also give you time to find good used equipmentoften for half
the cost of new. And you can organize your business entity, get your employer
ID, and send applications to Medicare and commercial insurers before you open
If you're an established practitioner, it will take two to three months to
get your own Medicare number. You can bill CMS later for services performed
before you receive your number. Commercial plans usually accept you within a
month if you participated with them through your former group.
If you're an employed physician, you probably have a restrictive covenant
in your group contract. Some states, like California and Massachusetts, prohibit
these noncompete clauses. And hospitals will usually let former employees out
of them, if only to keep departing physicians loyal. But a private group will
normally enforce a covenant, so you'll have to move outside the specified area.
If you do, you'll lose many of your patients, your office, and maybe the staffers
you worked with in the group.
How much you'll need to get off the ground
The cost of launching a practice depends on your style and whether you build
up overhead slowly or all at once. Consultants' estimateswhich include
costs for rent, payroll, insurance, and living expenses for the first few monthsrange
from $70,000 to more than $100,000 for a small primary care practice. At the
high end, notes Tuttle, you can spend $50,000 to $65,000 on furniture, equipment,
copiers, computers, and telephones. (The doctors profiled in "Going
solo: How four doctors are making it work" in this issue, set up shop
for much less.) A first-rate practice management computer system will cost $25,000,
although you can get one for as little as $10,000.
Chicago consultant Karen Zupko also advocates buying an electronic medical
record up front so that all your records will go on it from Day One. She notes
that small practices can reduce their up-front expense for a practice management
system or EMR by using an Internet-based application service provider, which
charges a monthly fee for software and maintenance. Still, you might not be
able to afford an EMR until you've been in practice for a while.
An alternative is to hire a billing service, but you'll have to pay it between
8 and 10 percent of collections. Consultants warn that good billing firms are
hard to find and that bad ones can cost you. "Billing systems tend to go after
the easy money and ignore the hard money," notes Marge Smith, a consultant in
Pueblo, CO. If you do choose a billing service, consider buying a PM system
later on, she says, so you'll have more control over your business.
Even if you outsource billing, a practice start-up can easily cost $70,000.
But if you have a good credit history, you can get a bank loan, and interest
rates are at rock bottom today. Think hard about how much money you need to
borrow, says Tuttle. You don't want to overspend, but it's best not to go back
to the well again, because that makes bankers suspicious, he says.
Structure the loan so you have interest-only payments for the first year.
By then, you should be covering your overhead and drawing a decent salary out
of cash flow. After that, says Tuttle, refinance the outstanding amount of your
loan over four or five years.
Appropriate insurance coverage is important, too
Besides regular malpractice insurance, you'll need to buy "nose" coverage
for your previous work, unless you have "tail" coverage from your old group,
notes Kenneth E. Bowden, a consultant in Pittsfield, MA.
You'll also need workers' compensation insurance, he says, which can cost
up to $2,000 a year for a staff of three. Then there's business liability insurance,
which includes "slip and slide" and internal theft coverage and costs $500 to
$700 a year. Your practice will also need casualty coverage on personal property
such as furniture and equipment. A business owner's policy that covers everything
except workers' comp costs between $1,500 and $2,000, says Tuttle, if your personal
property is worth $50,000. If it's valued at $100,000, you'll pay $200 to $300
more. Workers' comp, he adds, is usually written as a rider on a business owner's
policy. You can buy business overhead insurance, which will keep your office
running if you're disabled, for an additional $1,500 to $2,500 at the low end.
The experts advise you to offer your staff some kind of health insurance;
after you're successful, you might also provide retirement benefits. "People
won't take a job anymore if they don't get benefits," says Smith.
Don't forget the costs of insuring yourself and your family. Your life insurance
policy may lapse when you leave a group. Personal disability income insurance
is also critical, especially for younger doctors. And you can't go without health
insurance, which is becoming a major expense for everyoneincluding doctors.
If you go on COBRA after leaving a group, you'll continue to be insured at
the group rate for 18 months. But even under COBRA, you may pay $8,000 a year
or more to keep your family health coverage. Once you have to buy individual
insurance, of course, the sky's the limit.
A practice owner also needs to comply with government regulations, starting
with payroll deductions. You might have an experienced bookkeeper who can do
this. If not, your accountant might be willing. You or your spouse could also
get out payroll checks with the help of inexpensive software like Intuit's QuickBooks
or Microsoft for Business. If you don't want to bother, and don't mind hefty
fees, outsource this duty to a national payroll service such as Paychex or ADP.
You'll pay $5.50 to $6.50 per check if you have a small practice, Tuttle estimates.
How do you deal with all those other government regs, including the Byzantine
rules of Medicare, Medicaid, Stark, CLIA, OSHA, and HIPAA? Soloists like FP
Craig Wax of Mullica Hill, NJ, do it themselves. You can, too, with help from
your specialty society, notes Karen Zupko. (The AAFP, for instance, has a plethora
of how-to material on its Web site.) But if you don't have time and don't feel
confident enough about delegating such important tasks to a staffer, consider
farming them out to a consultant or an accountant with expertise in health care.
Can't find the right staff? Steal them
Your practice style and tolerance for scutwork will determine how many staffers
you need. In Pueblo, CO, consultant Marge Smith says the average primary care
practice has 2.5 "full-time-equivalents" per physician, including a receptionist
and an MA (both cross-trained to do billing). But Gray Tuttle, based in Michigan,
believes you need more. Pediatricians need 4.5 FTEs per doctor; family physicians,
4.25; and internists, 4, he says. Subtract half an FTE if you use a billing
Among the staffers Tuttle suggests you hire are a receptionist, a part-time
billing person, a part-time records clerk, and a full-time "floater" who can
jump in on various front- or back-office tasks. He and other consultants also
advise hiring an MA or LPN, because not having one slows you down. But in the
early days of your practice, when patients are few, you can do without a clinical
The quality of your staff is key to the success of your practice. If you have
good people working for you in the group, says Tuttle, try to bring them along
when you go out on your own. They might be out of a job if you don't hire them,
so they might accept cuts in pay and benefits, he adds.
If you end up recruiting from the outside, consider placing a newspaper ad,
says Smith. Even better is recruiting through word of mouth. This works especially
well, she admits, in a small city like Pueblo. Kenneth Bowden has a more audacious
suggestion: "Steal them from other offices. It's a limited community."
Bowden adds a word of caution, though: Stealing experienced employees from
other primary care offices could boomerang on you if you're hoping to charm
other family doctors or internists into sending you their overflow. They're
not likely to do that if you steal Sally who's been on their front desk for
You may need to recruit patients as well as staff. Advertising in the paper
helps attract patients as well as job applicants. So does getting to know the
folks in your hospital's referral center. Sometimes you can also pick up regular
patients by working in the ED or an urgent care clinic. And by all means have
a Web site you can direct patients to.
Going into business for yourself can be scary, and it takes a lot of planning,
but it can work if you consult with the right professionals, and use your head.
Ken Terry. Going solo: Start-up basics. Medical Economics May 9, 2003;80:114.