The economics of direct care are straightforward. Here are the three variables to track.
We’ve explored the reasons to consider direct primary care (DPC) (or direct specialty care) and you’ve visualized the type of practice you want to open. Now it’s time to consider the financial realities.
Fortunately, the economics of direct care are straightforward, involving three main variables: number of patients in your panel, monthly membership fee (or per-visit charge for specialists), and practice overhead.
Estimating potential physician income
Estimating your potential salary as a direct care physician is an important factor in deciding to move forward. Physicians deserve to earn a fair income for our labor. No matter how altruistic we are, we need to pay our own bills, which may be higher for those of us who are supporting families, have large student debt, or live in an area with a high cost of living. Fair pay also helps doctors to feel that our work is adequately valued, which is important to our psychological well-being.
You can get a rough idea of your potential earnings by using the following calculation:
Physician income = (Number of patients) x (monthly membership amount) – (overhead expenses)
For example, a full practice of 600 patients with an average monthly membership of $60 per patient would gross $432,000 per year. If the practice has an overhead of 30%, physician profit should come in at about $300,000 per year.
Using this calculation model helps you to think about the other variables—how many patients you will need, what price point you will charge, and how much overhead you can afford. One way to start is by considering the minimum salary that you will need to earn to support your lifestyle, and then work backward to determine how many patients you will need at what price point to meet that goal.Keep in mind that these numbers will vary depending on your market. For example, rental prices and membership fees that prospective patients are willing and able to pay depend greatly on socioeconomic conditions in your area.
When considering your potential income, you will also need to factor in how long it will take to build your desired patient panel. If you are converting a well-established traditional insurance practice to a direct care model, you can expect that about 10% of your existing patients will enroll in the new practice. While I have heard of a few physicians with higher conversion rates of up to 40%, it is far more common to see numbers closer to 10-15%.
Fortunately, even starting with a small percentage of a traditional panel can add up to a substantial number of patients for a direct care practice, which usually maxes out at 600-800 patients. For example, if 10% of a traditional panel of 3,000 patients enrolled, your practice of 300 patients will be profitable from day one.Further, you can expect fairly rapid growth from word of mouth as these patients tell others about your practice.
If you are starting a practice from scratch, perhaps in a new community, it may take longer to build a patient following and become profitable. Factors that may slow practice growth include areas with high Medicaid and HMO saturation, rural or socioeconomically disadvantaged areas (although not always), or establishing a practice in an area already supplied with many physician practices.
I’ll share tips about how to overcome these challenges later in this series, but it may be worth thinking about ways to supplement your income while the practice grows. Many direct care doctors moonlight in other settings providing urgent care, hospice coverage, locums, or telemedicine part-time.
Projecting overhead expenses
Next, consider the cost of opening and running your practice. Overhead expenses will vary depending on your practice vision. A micro practice without staff members or a house call-only practice that doesn’t require office space may have overhead as low as 15%. If your dream is to have a glamorous office space with water features and marble floors and multiple assistants, then your overhead will be higher. Most direct care doctors focus on keeping overhead on the lower end, around 30-40%, which helps to keep patient fees affordable. I recently calculated my overhead at 34%, but it was under 30% when I first opened.
The two largest overhead expenses for direct care practices are office space and staff salaries. While some direct care doctors buy an office building as a financial investment, most choose to rent, with some subleasing space from other professionals. Start scouting locations for your practice by searching online listings for commercial real estate or work with a broker to get an idea of price points in your area.
Don’t be afraid to think outside of the box. When I was starting my practice, I found that rents were too high in my desired area, but prices significantly dropped just a few miles away. I found a medically zoned building where I could rent two side-by-side executive suites totaling 500 square feet. I set up one suite as a combined office/ exam room, with the second suite housing my office manager and our supplies. Patients used a shared waiting area and restroom. My rent of $1,000 included electricity, and the landlord threw in a free month to sweeten the deal. After a year, I upgraded to a larger combined suite within the same building, where I have been for the last five years.
The other big budget item is support staff. While a micro practice model without any support staff offers the lowest overhead, this takes a toll on work-life balance. For me, having a staff member was a top priority, and I invested in an office manager from day one. I chose to hire an administrative staffer well-versed in customer service and organization over a clinical assistant, reasoning that I could handle clinical responsibilities myself and preferred to delegate day-to-day administrative demands. My office manager helped me set up accounts, managed our IT needs, and recruited new patients by explaining our practice model—and in a pinch, she could serve as an extra pair of hands under my direct supervision.
While some direct practices choose to hire staff with a medical background, delegating responsibilities like vital signs, injections, and blood draws, I have come to find these tasks fun and rewarding. If that’s not something you want to do, then you will want to hire a medical assistant or nurse who can also perform clerical duties.
Other overhead expenses include malpractice insurance, office equipment, supplies, phone/ internet, taxes, advertising, website, accounting, medical waste, and electronic health record. Many of these expenses are far lower in direct care than in traditional practice. I’ll elaborate on this in my next article.
In the meantime, here’s your homework: start thinking about the minimum salary you would need to earn to support your lifestyle. Consider whether you can convert your existing practice to direct care, and what moonlighting opportunities are available in your area if you need a part-time income.Think about what type of staff member you would want (maybe a person you know even comes to mind?) and start scouting rental locations. Keep detailed notes in your bullet journal or notebook. You’ll be glad later!