Steps To Start a Medical Practice

How much time does it take to start a medical practice?

Anywhere from three months to a year.

The first step is deciding to go solo. We know of some colleagues who have been “deciding” to go solo the last two years. Their job may not be intolerable but not great, so there’s no huge impetus to push you to go solo.

On the contrary, one colleague’s boss sold the practice. Being the junior associate, he was told he was let go from the practice, without any warning. He hustled, so it took him less than four months to open doors.  It’s also easier if you’re already practicing in the same area that you plan your solo practice in.

For most of us, the two rate limiting steps are finding an office space and for the time it takes for tenant improvements. Frequently, the first office space you look at doesn’t work out and you’re back to starting your search again. Don’t count on anything until the ink dries on the lease agreement!

The other potential rate limiting step is tenant improvements. Many of us have to build out a empty shell (get an architect to help create floorplans, hire a contractor, and build the walls, fixtures, etc). This usually takes longer than predicted, frequently 3-6 months from scratch.

Ho Sun took about eight months to open doors.  Since I had almost no tenant improvements, it took me six, but I could’ve opened up a month earlier, I just wanted a extra month to take vacation and get ready.

How much does it cost to start an ophthalmology practice?

The most common estimates for startup costs for ophthalmologists are between $200-300K, with a $100K line of credit to cover operating expenses after opening, as it typically takes three to six months to break even. I know many colleagues who took no or minimal salary their first year.

Although this sounds like a lot, if you choose to join a practice and buy in the number can be higher.  I have heard of up to $400 to $500 grand. The money you invest in starting a practice is not a sinkhole- at the least you should be able to sell your equipment, at the best you might be able to sell your practice to a buyer for goodwill and equipment value (a blog post on practice valuations is here, along with one about the pros and cons of buying an existing practice).

The two most important factors for startup costs are how much your equipment costs, and how much you pay in tenant improvements. If you buy lots of brand new equipment, your startup will cost more than someone who buys less equipment and buys it used.

I was fortunate that my office was previously a psychologist’s office, so all of the rooms were the exact right size for me, so I didn’t pay anything for tenant improvements (TIs) nor did it take any time. Often times the landlord will give you a TI allowance (rolled into your rent), but we know of colleagues that have paid upwards of $80,000 in TIs.

Ho Sun spent about $450,000 for his startup costs, which included about $300,000 for equipment and $60,000 for tenant improvements. That’s because he fully equipped his office and built out a shell. On the other hand, I only spent about $155,000, which included $125,000 for equipment. Because my lease was structured to be rent free for my first six months, I was actually profitable my third month.

What are the steps to start a medical practice?

As Ho Sun stated in his consultants re-revisited post, he figured out all the steps by himself.  I used his original iballdoc blog as a general guideline, but here are the steps one by one.

Ironically, when Ho Sun read this post, even after figuring out the process himself without any outlines, he texted me “this sounds really intimidating!”

We want to reassure you it isn’t intimidating.  It takes time and legwork,  but anyone can do it.  Surviving medical school rotations and ophthalmology residency was much more intimidating and stressful at least for me.

There will be at least one, if not multiple blog posts, about each of the following steps to start a medical practice coming up.  We will link them to this post so click on the links:

Things You Can Do Without a Practice Address

Once You Have Your Business Address

  • Incorporate practice
  • Obtain tax ID number
  • Open business bank account
  • Obtain Type 2 number
  • Obtain business insurance
  • Credential with Medicare (PECOS application)
  • Credential with Medicaid (if rates for your state justify so)
  • Obtain hospital privileges
  • Obtain local business licenses
  • Credential with commercial plans (CAQH application) and IPAs
  • Obtain ambulatory surgery center privileges
  • Consider joining any ACOs affiliated with your hospital
  • Choose where you will do your procedures and cases

Prior to Completion of Tenant Improvements/Buildout

  • Order medical and office supplies
  • Order business cards and prescription pads
  • Find IT company and buy computers
  • Arrange for office phone and internet service
  • Pick credit card processing
  • Choose how you will advertise
  • Write or obtain employee manual
  • Create forms (patient intake and consent forms)
  • Obtain office furniture

Things to Do One Month Before Opening Day

  • Update address with Google places, Healthgrades, Vitals, and insurance companies
  • Advertise for employee(s)
  • Interview potential candidates
  • Run background checks on candidates
  • Hire employee(s)
  • Set up payroll service

Things to Do Around Opening Day

  • Shake hands with potential referring doctors and sources

Things to Do Now and Forever

  • Learn ins and outs about billing and revenue cycle (so you can do your own billing or supervise to keep in house)
  • Learn about bookkeeping
  • Learn basics of accounting
  • Stay up to date with the latest medicine in your speciality
  • Learn how to avoid penalties for Medicare quality program (MIPS and MARCA)

And this is just the beginning… setting up the practice. We also have many posts on how to run the practice!

11 thoughts on “Steps To Start a Medical Practice

  1. Thanks for contributing this. I originally followed Ho Sun’s original blog back in the day and am happy to hear he is doing well. Do you know of any ophthalmologists who have gone completely to a cash pay system (not including pure LASIK practices), foregoing insurance/medicare completely?

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    • Yes there is one in my town that is cash pay. It’s more common in affluent areas such as Manhattan or Beverly Hills. You probably need to be established and have a pretty decent patient base before opting out.

      Ophthalmologists are different from many other physicians due to their heavy dependence on Medicare (patients over 65 needing cataract surgery, macular degeneration and glaucoma treatment etc). This makes it harder to go cash pay.

      As your practice gets busier instead of running on a treadmill you can drop your lower paying commercial insurances, or at least try to negotiate for higher rates. Indeed, many practices (but not all) that are constantly hiring and firing docs out of training are basically using their junior associate to see these patients and take call.

      The two authors of this blog run micro practices (although Ho Sun has gotten busier)- it is definitely possible to make a good living even when taking all insurances! Most folks are scared of messing up billing and coding, we will have blog posts on maximizing this so if/ when you go solo you will be properly reimbursed for your time and expertise, even taking all insurances.

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      • Thanks for the detailed reply. I’m not sure if I want to go this route (currently employed with good income, benefits, and no major headaches), but it’s nice to know this blog is here as a guide if things don’t work out and I need to hang a shingle in the near future.
        And sorry for the grammar redundancy in my initial post. Should have read that before hitting send.

        One other question: how long do you guys want to work? The one major potential issue I see with opening a practice myself is that I want to retire – or at least go part time – relatively early; talking mid to late 40s (I finished training the same year as Ho Sun, so I assume we’re around the same age). Is this something either of you are shooting for, and if so, do you think it’s feasible as a solo practitioner?

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      • Commitment to a practice was something I grappled with when I first opened. At first I thought I’d be stuck in one place forever. But we know of someone who started solo, switched and joined a group, then went solo again. We also know if someone who sold their practice in one state to buy another solo practice near their in laws. So commitment to a solo practice isn’t forever!

        The money you invest isn’t a sinkhole; there is still definitely goodwill for a practice. (We’ll have a post about practice valuations coming up soon.)

        Even if I never sell my practice, just the fact that I run it more efficiently would make up for any loss of goodwill etc. If your overhead is 5% less than a group over 10 years that’s 50% of one years collections which is typically a year’s salary!

        I am already well on the path to financial independence which is another beauty of solo practice- took 8 weeks vacation and two weeks holidays last year. Doubt any group would let me do that. I still want to work because I enjoy ophthalmology.

        The beauty of going solo is you can build a 40 patient per day practice, or limit it to 15 patients a day. You can choose to take a half day off per week or whenever you want to go hiking or spend with your kids. No one tells you what to do and I wouldn’t have it any other way!

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  2. Honestly, I would also prefer to stop practicing ophthalmology before I turn 50. I’m 38 right now, so I have 12 years to make that happen. However, I’m not really sure anyone can comfortably reach retirement as a clinical ophthalmologist alone, without any other side gigs. I guess it also depends on whether you’re single or married with 8 children. Also depends on your personal spending habits. I have a lot of things on my bucket list, including playing professional poker (I haven’t given that pipe dream up yet), so I would really really like to not practice full time medicine for more than 10 years.

    Regardless of whether you’re in solo practice or group practice, unless you’re in one of the optometrist feeder cataract mills, doing 2,000 cases a year, I don’t think you can make more than $500,000 a year as a general ophthalmologist. If you look at a bunch of surveys, I think the typical number that gets thrown out is $300,000 a year.

    Let’s run some numbers. Let’s assume that your starting salary is $250,000, and you ramp up to $400,000 after 3 years with a 2% increase each year, and with no practice buy-in. Let’s also say you are single, finished with residency at 30, and spend $5,000 a month for the next 20 years, with 2% adjustment in inflation each year. Assuming you take home 65% of your income, and your savings grow at 5% per year, you would end up with about $7.5 million by the time your are 50. Then, you would be able to live off close to $200,000 a year.

    Having said that, life happens. You have to be pretty strict in your savings and expenditures, and very good with your investments to get to this point. My guess is that with family, house, and comfortable life expenses, you might be able to save $3 million by the time you’re 50. That would leave you with under $100,000 a year to support your family in 2030.

    Unfortunately, as any type of general ophthalmologist, I think it will be challenging to comfortably retire at 50 without having other investments, passive income, or businesses. I think the benefit of opening up a solo practice is that you become more versatile. I’m not only an ophthalmologist, but I’m also an entrepreneur now. I’m better able to evaluate other investment or business opportunities, and can more comfortably venture out into areas that don’t require me to see patients day in day out. I don’t see myself being a full time ophthalmologist in 10 years. I just see my solo practice as a launching pad for everything else.

    In terms of exit strategy for my practice, I have a few options. I could either sell my practice, hire someone to run it, or break it up into pieces and liquidate. Either way, all the money I invested into my practice still retains some value. We will go over calculating practice valuations on a later date, but I would probably estimate my practice to be worth around $450,000. Of course, it’s only worth what the next person will pay. Since, I haven’t put my it up for sale, and no one has given me an offer, it’s worth nothing as well. However, my point is that you don’t completely lose out on the opportunity cost during the first 3-5 years of your practice when you make less than what an associate or hospital employee would make.

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    • Good to hear this. If you were willing, I think this topic (early retirement) would make for a great post, as a lot of people I know in our field, and especially in our generation, are considering this. Our situations are a little different in that I live in a low cost of living area in the south and don’t plan on leaving here (I saw that $4000 rent and nearly choked on my coffee), so the total amount that I need to retire comfortably isn’t nearly as high as the 7 mil in your example above.

      On a related note, I gave you guys a shout out on Bogleheads. I think a lot of the physicians on there would be very interested in the information on this blog.

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      • Ron, appreciate your comments. We already have posts on associated topics written and ready to post on this blog, but first things first. We need to talk about how to open and run a practice so we can make the money to retire early! I’ll have a story about how I financed my practice that relates to the above comments up in a few weeks.

        In addition to practice financing, we will also be talking about personal finance as it pertains to business owners, corporate structure and how it affects taxes, accounting for small practices, practice valuation (purchase and sales), retirement plans, investing in ambulatory surgery centers and owning your practice office real estate, among other topics.

        Thanks for your interest (and especially the shout out on Bogleheads) and stay tuned!

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  3. Thank you for writing this blog. I have a few questions. 1) How do you know if your area will support another ophthalmologist? I live in an area with large groups and restrictive covenants. The optometrists are essentially beholden to one group in town. However, for a multitude of reasons, I really would like to stay here. 2) In obtaining a small business loan, will all of the assets of my family be at risk?
    Thanks

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