Office Practice Starts With Questions

May 15, 2001
Practice Management
John W. McDaniel

More than at any time in the past, it seems that a great number of physicians are entering or reentering the private practice of medicine. While most of these situations involve physicians completing residency training, many doctors are making the transition into private practice after having been affiliated with a hospital, large group practice, managed care organization, physician practice management company, or other organization that is now jettisoning physician practices. These physicians are moving into a private practice in the same geographic area or establishing a new practice in a new location.

For physicians just entering or reentering private practice, there are several key considerations. First, physicians should determine if there is an adequate market need within the primary service area in their given specialty. When gathering this information from a local hospital or physician recruiting company, physicians will find market profiles include the necessary number of physicians by specialty for a given population.

Market Considerations

National standards indicate, for example, that it takes a population of 3,500 persons in an area to support one internist or 696,000 persons to support one pediatric nephrologist. Any physician considering private practice should review this information carefully before proceeding.

Another important consideration is the happiness of your spouse. Physician recruiters say one major reason physicians leave practice situations after they have been recruited is due to a spouse’s dissatisfaction.

Interestingly, another major reason physicians leave a practice is that the practice was not established appropriately. In other words, after several months in practice, the physicians may find that practice operations have not been well established, for example, or that the practice has poor billing and collection procedures, disorganized internal operations, or lower than expected reimbursement rates. Any of these or other factors may cause a physician or his or her spouse to want to relocate.

After obtaining baseline information regarding the primary market area, many physicians will engage the assistance of a consultant or experienced practice adviser about developing a medical practice business plan. This business plan outlines the basic service strategy the practice will use and involves a detailed market assessment including a SWOT analysis. In a SWOT analysis, a physician and his or her advisers will review the practice’s strengths, weaknesses, opportunities, and threats. Such an analysis allows the practice to analyze its position in a market and determine areas of opportunity.

To perform a market analysis, physicians will need information about the market from a local hospital, chamber of commerce, or newspaper. Typically, newspapers have one of the largest repositories of market data since publishers need this information to develop marketing activities for various advertisers.

Once the service strategy and market analysis have been done, the physician should develop a financial plan with reasonable budget projections. These projections will include forecasts of expected patient volume and revenue and budgeted operating expenses. Through the business planning process, the physician can best determine his or her likelihood for success.

After making the decision to enter private practice, the physician then faces myriad questions involving issues such as office location, legal structure, and practice equipment. To help simplify the processes involved in making decisions on these issues, we have compiled a physician practice start-up checklist. On this checklist, physicians will find the major areas of emphasis and some of the logistical requirements for entering private practice.

While this list is by no means complete, these areas are illustrative in terms of the coordination of dozens of logistical issues that account for the appropriate development and operation of a medical practice. It is easy to see why many start-up practice situations fail when physicians do not access professional assistance either through the local hospital or a physician consultant. The process for establishing a successful medical practice is virtually identical to the process of establishing any successful small business and, in the business world, professional managers usually spend months developing a business plan before opening their doors to the public, whereas most physicians attempt to open their practice within 90 days of making a decision.

Our experience has shown that physicians in solo and small group practices not only enjoy increased professional satisfaction but usually also realize higher incomes than they experienced in their previous practice situations. These successes, however, begin with the establishment of a sound foundation with respect to the development of their practice in a very structured and formal way. In other words, “proper planning prevents poor performance.”

Physician Practice Start-Up Checklist

A physician opening a new practice may find the following list useful when opening a new office.

Legal structure. Decide whether the practice will be formed as a sole proprietorship, partnership, or corporation, such as a limited liability corporation. Also, choose an attorney with appropriate experience in corporate and health care matters such as physician contracting, office and equipment leasing, and bill collecting.
Location. Conduct a thorough analysis of competitors; locate the practice in an area that has the most appropriate demographic mix of patients, depending on your specialty; decide whether it’s better, depending on specialty, to be on a hospital campus or in a free-standing location. Also, determine what type of lease is used for the office space and identify the process for developing architectural plans or construction documents that may be needed for expansion.

Financial issues. Conduct a thorough financial analysis regarding first-year operations, including cash-flow projections; gather information necessary to get a line of credit at the bank; outline your banking needs, such as personal and business accounts, loans, and letters of credit; have an accountant develop a chart of accounts and accounts-payable procedures; and develop appropriate fee schedules for the primary market area to be served.
Equipment. Make a list of the major equipment you will need; secure bids on office equipment and examine lease-versus-purchase options.

Licenses, permits, and registrations. Consider all requirements for city and county licenses; inform the state medical licensing board of your new address, or get a new license if necessary; determine the requirements related to prescribing narcotics; review applicable CLIA requirements; and apply for a federal employer identification number (EIN).

Provider numbers and credentialing applications. Complete all requirements for medical staff applications for credentialing; submit all provider applications to Medicare and Medicaid as needed; determine the managed care organizations in which you will participate and submit the appropriate credentialing applications.
Personnel. Develop staffing salary projections; write appropriate job descriptions; advertise for job applicants and begin interviewing candidates; draft personnel policies and procedures; consider offering employee benefits.

Patient information systems. Evaluate your management information needs; solicit ideas and bids from system vendors; and do a cost-benefit analysis of doing billing in-house versus contract billing.
Medical records. Get sample medical records from vendors; determine your dictation needs; and develop procedures about retaining records.

Business office operations. Write policies and procedures for billing and collections; select or develop appropriate business office forms.
Clinical procedures. Develop policies and procedures for patient care, laboratory, x-rays, prescription refills, infection control, employee safety and health, and other clinical areas.

Insurance. Evaluate your insurance needs and get quotes for professional and general liability and business insurance.
Office services. Evaluate the need for and receive bids for such services as medical waste removal, janitorial services, pest control, landscaping and maintenance, and telephone answering and transcriptions.

Marketing. Write a marketing plan; gather materials for a practice brochure, announcements, business and appointment cards, recall cards or letters, placards for the office, and newspaper announcements. —JWM