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Learn how to avoid common mistakes as you build your practice from the ground up.
Making the decision to start your own practice can feel like a daunting move, especially when you consider that more physicians than ever before are choosing employed versus solo practice. Although employed physicians often cite reduced administrative burden and better work/life balance as perks of working for a hospital or health system, solo physicians maintain that running your own practice can be equally rewarding—especially if you clearly identify goals and put measures in place to avoid common pitfalls.
As you navigate your journey toward becoming a solo practitioner, accomplishing the following action items will help ensure you stay on track.
One of the biggest pitfalls of staring a practice is not allocating enough financial resources. If you’ve been previously employed by another physician practice group or health system, the concept of overhead expenses can be overwhelming and unexpected. Consider working with a certified financial planner, accountant and attorney to determine expected short-term and long-term expenditures. Starting a practice can often cause negative cash flow, so it’s important to carefully plan and budget for anticipated start-up costs.
Your practice plan will serve as an evolving road map that guides the future development and growth of your business. It should reflect your values, vision and goals, as well as address clinical objectives and practical considerations, including:
The plan should include short-term and long-term goals to be updated at least once a year to align with changes in the market, reimbursement, patient needs, or your own skills and values.
When your practice plan is established, it’s time to determine the type of business entity through with your medical practice will be conducted. This will be the vehicle through which your practice secures its Federal Tax Identification Number. The choice of entity impacts your liability exposure, tax treatment and corporate structure. This is a good time to seek advice from legal and financial experts who have experience forming and structuring medical practices.
Once you select the type and name of the entity, related documents and forms must be filed in the state where the practice is seeking to provide medical services. Upon filing, you will need to secure a federal tax identification number (TIN) or an employer identification number (EIN) from the IRS. There will likely be specific governance and annual requirements the entity will need to comply with in order to maintain good standing. For example, most entities are required to identify and elect a Board of Directors and conduct annual meetings in order to be in compliance with state regulations.
Solo practitioners often identify settling on a location as one of the most challenging parts of starting a practice. Depending upon the market, community and payer mix, location will likely be a driving factor in the sustainability of your practice. Once a location is identified, you will next need to determine whether to lease or buy your office space.
Securing financing for the purchase of a space needs to be balanced against your assets and debt ratio, including student loans and any other personal loans and lines of credit. Working with a commercial banker can help you identity the amount of capitalization required for your practice, including lease payments or the purchase of a building or condominium.
Prior to securing a loan, you should be sure to consider all the start-up costs of the practice, which could include:
Insurance coverage for professional liability, premise liability, workers’ compensation, and Errors & Omissions should be purchased in conjunction with the opening date of your practice. Be sure to consult with your insurance broker to determine appropriate coverage limits and policies. You may want to consider insurance coverage for fraud and embezzlement in the event that an employee diverts funds from the practice.
As a solo practitioner, you will be required to navigate a complex regulatory environment on a daily basis in order to provide patient care, receive reimbursement and avoid a government or insurance audit or investigation. If your practice is going to provide medical services through Medicare and Medicaid, you will need to comply with federal regulations, including:
Your compliance plan should outline how your practice’s standards, policies and procedures comply with applicable state and federal regulations that safeguard against violations and ensure appropriate billing practices. While a compliance plan will not automatically block an audit or investigation, it can be a valuable asset to demonstrate compliance efforts in the event of an audit or investigation.
Recruiting and hiring staff may require significant time and energy depending on your practice size, the market and your patient’s needs. Plan to allow plenty of time for checking applicants’ references and credentials to verify training and background. You may want to consider executing employment agreements or independent contractor agreements with all your employees outlining terms, roles and responsibilities for each party. Hiring an office manager or practice administrator who can handle practice operations will enable you to spend less time on administrative functions and tasks.
It is good practice to conduct staff education and training regarding the practice’s policies and procedures and have an employee manual in place. Every new hire should be required to review the manual as part of the on-boarding process.
You will need to identify the projected payer mix of your new practice prior to treating your first patient. This includes becoming credentialed and enrolled as a provider with payers, including Medicare, Medicaid and private insurance carriers depending on the payer mix. This process can take several months, so be sure to allow plenty of time.
As a new practice owner, you will likely be approached by vendors who want to sell your practice services, equipment and supplies. Note that if your practice is providing medical services to Medicare or other government beneficiaries, you will need to execute business associate agreements with its vendors to comply with HIPAA regulations and the HITCH Act.
Some of the common pitfalls physicians make when starting a practice include: