Avoid these 6 expensive pitfalls to maximize your medical practice start up’s chances for success.
Mistake # 1: Not Doing Market Research First
It seems obvious, but here’s a common scenario:
Dr. Smith is an employed physician. His contract includes a noncompete agreement. Dr. Smith is tired of the bureaucracy. His patients love him. So he decides to strike out on his own and start a clinic, where he can practice medicine on his own terms and create the kind of patient experience he envisions.
Dr. Smith’s contract with his employer has a noncompete clause. So Dr. Smith picks an office building as close to his home as possible, while still outside the boundaries of the area prohibited by his noncompete agreement. It’s an hour drive from his old office, but since his patients love him, he assumes they will make the journey for the next two years. Afterall, he only intends to stay there until the noncompete expires. Then he will move back to the original area, and he assumes all his patients will then come back to him.
Like Dr. Smith, many physicians assume that their patients will follow them, even though studies suggest that convenience is THE major factor in choosing a provider these days. Physicians may be overly optimistic about how far patients are willing to travel, as well as how many patients they can recoup once they move back into their original area. These can be costly mistakes.
A more prudent approach is to assume you will need to recruit new patients, and to determine if the market will support another new medical practice. Some of the resources you can use to evaluate a potential location include:
- Google maps. What do patients see when they search for a new provider in the area?
- Competitive Research. Hire a mystery shopper. Have someone call potential competitors to see how long it takes to get a new patient appointment to get a sense of whether there is unmet demand. Check out reviews online.
- Physician Density Maps. Medical specialty organizations often publish dermatologist density, orthopedic surgeon density, and other specialty-specific density numbers by geographic area.
- Demographic trends. Do you think a pediatrician would do better in a community where most of the population is over 65? Or in a community with lots of young families? Also, what are the top conditions you treat? What is the prevalence? Then look at the population size and characteristics to determine whether there is sufficient demand for your services.
- Medicare Provider Utilization Files. This publicly available claims data allows you to query by city, zip code, specialty, or individual providers. You can see the number of Medicare beneficiaries treated, as well as CPT volume, for each potential competitor and the market as a whole. It can be used to see what competitors are doing. For example, if most providers have roughly the same payer mix when it comes to Medicare, you can get a high level estimate of relative market share. Caveat: This data lags about 2 years behind and only includes Medicare FFS claims.
We will be posting an instructional video on how to use these files in the coming weeks. Sign up for our email list to be notified.
Mistake #2: Credentialing is Key
A group of physicians opened a new outpatient oncology practice. They created detailed financials, and planned their medical practice start up for months. But just before opening day, they remembered that they needed to start the credentialing process, which often takes 90 days (and sometimes longer). The result: no cash flow coming in for the first few months. They ended up seeing patients for free for the first months, because they had not timed credentialing activities appropriately.
Another common credentialing pitfall: A popular physician leaves an employed job to start a new practice. She has a loyal patient following. As anticipated, most of her patients want to come to her new practice. However, most of those patients have a certain major insurance plan. When the physician tries to join the plan under her new practice, she is told by the insurer that the network is closed. The physician appeals the insurer’s decision, to no avail. Her patients like her, but not enough to pay out of pocket for medical care that they can get for free from another provider who is in network.
Before deciding on a location for your medical practice start up, check into which plans will contract with new providers. Are there major employers in the area? Which plans do they use? Will the new practice be able to participate in those networks?
Mistake #3: Marketing Is an Afterthought.
Prior to starting, you need to consider how patients will find you. For many solo practitioners and smaller practices, their website becomes their main source of referrals. Particularly if they don’t have strong referral relationships in the area. Yet many new practices don’t have a website. Or they start a free website, and don’t finish it. Another common mistake is leaving old information on the internet. How will patients find you if your old contact information is what they see on Google maps and rating sites like Vitals.com, Healthgrades, etc.?
Think through who your new patients will be, where they hang out, and how they will find you. Then figure out a plan for reaching them and getting them to schedule an appointment.
Mistake #4: Ignoring Lifestyle Considerations.
What is your ultimate aim for starting a medical practice? Are you creating a business, or just another job for yourself? Will you be trading your time for money 100 percent of the time? Or do you have a strategy for other income streams? What’s your ultimate goal and what’s the exit strategy? Will you be able to take vacations and relax with your family? Or will you be worried, knowing that all revenue stops whenever you’re not in the clinic, while the practice expenses continue to pile up? Can you automate your practice? Design it so that it generates revenue even when you’re not physically there?
What do you plan to do about administration? Will you try to see patients and manage the business side of the practice too? Or will you outsource as much as possible, so you can focus on direct patient care? How will you make sure you are getting the best prices and vendors?
Mistake #5: Picking the wrong office building.
Not every vacant office space is suitable for a medical office. Consider things like hand washing and privacy. Are there sinks in areas where you need them? An empty bank office might look pretty, but those large glass walls on your intended exam rooms don’t provide privacy for patients. Is the office carpeted? If so, how will you meet OSHA requirements? Do you need separate restrooms for staff and patients?
Parking issues and traffic patterns can hurt your new business. We know of at least two successful practices that grew quickly, only to run out of parking. One downtown clinic hired more employees, then ran out of parking for both employees and patients. Staff and patients had to pay for a parking garage several blocks away in a bad part of town. Another practice has insufficient parking, so their patients are chronically late from searching for a space. This causes long wait times and frustrated patients abandon the practice.
Is there construction planned? Is there heavy traffic in the area? Traffic problems may deter potential patients, and having the road ripped up in front of your office tends to hurt business. Do your patients rely on public transportation? If so, is there public transportation nearby?
You might want to consider subletting medical space. Particularly if there is a complementary service in the building that could serve as a source of referrals.
Are their signage opportunities? If your new space is in an area with high visibility, will you be permitted to have a sign, such as “now accepting new patients?” Limitations on signage can hurt your new business.
Mistake #6: Not Putting Together a Budget
Healthcare has challenges that other businesses do not. When you go to the grocery store, you have to pay before you consume your groceries. Not so in most medical practices. Insurance payments come weeks after the service is provided. And that’s assuming the insurance company doesn’t deny your claims, or delay payment by requesting medical records. Meanwhile, you’re still waiting to get paid, but you have to make payroll. You have to pay rent and utilities. This often results in physicians taking on personal debt to cover practice operations.
Also, most physician owners don’t pay themselves a full salary unless the practice is profitable enough to cover it. This is why it’s crucial to know the practice’s break even point and develop financial projections that you can monitor along the way to make sure you’re on track. You’ll still need to pay personal bills in the interim. Without financial projections, it’s too easy to blow through all your capital and wind up stranded.
Another pitfall is staffing your practice with a bunch of employees on day 1. Labor is the biggest expense, and a start up practice rarely has enough to do initially to justify full time staff. When you do hire, you will need to find people with initiative—problem solvers who wear can many hats and don’t need multiple levels of supervision. A budget will help you think through how to phase in staff as your volume and revenue increase.
So Much to Consider…
When you start a new medical practice, there are many things to consider. How you sequence and time the literally hundreds of activities involved will substantially impact your finances. We’re here to help. If you’d like a FREE video consultation to discuss your medical practice start up, Click here.