Starting or Buying a Private Practice

Owning a practice gives you control: over your schedule, your staff, how you care for patients and how the business grows. It also gives you every problem a hospital administration would otherwise absorb, from payroll to payer contracts to the broken copier. Dr. Siddiqui built his own practice and procedure facilities, and The Dark Side of Medicine is candid that independence means leaving the protection of a large system. This guide sets out the main steps, whether you start from scratch or buy an existing practice.

Choose the entity and get the basics in place

Most physicians practice through a professional corporation (PC), a professional limited liability company (PLLC) or a similar entity permitted in their state. The choice affects liability protection, taxes and how partners can be added. Many states have rules, often called the corporate practice of medicine doctrine, that limit who may own a medical practice or employ physicians. A healthcare attorney and a CPA should help you choose and form the entity, and set up its tax elections.

Then assemble the identifiers and registrations the practice will need:

• An employer identification number (EIN) from the IRS and a business bank account.
• A National Provider Identifier (NPI) for yourself (Type 1) and one for the practice (Type 2), from the NPPES registry.
• Your state medical license and, if you prescribe controlled substances, a DEA registration for the practice location (plus any state controlled-substance registration).
• A CLIA certificate if you will perform any laboratory testing, even simple waived tests.
• Malpractice insurance, general liability, property, cyber and workers' compensation coverage.
• HIPAA privacy and security policies, business associate agreements with vendors, and an electronic health record.

Credentialing and payer enrollment

You cannot be paid by most insurers until you are enrolled with them. Medicare enrollment runs through CMS's PECOS system, including reassigning your benefits to the practice. Medicaid enrollment is run by each state. Commercial insurers typically verify your history through the CAQH Provider Data Portal (the organization now operates as DataSpring) and then decide whether to contract with you.

Enrollment and credentialing commonly take months, and insurers may not pay retroactively for services you provide before your effective date. Start as soon as you have a location and entity, keep copies of every submission, and track each application weekly. Hospital privileges follow a separate process, with its own committee schedule.

Negotiating payer contracts

New practices often accept the first fee schedule an insurer sends. It is worth understanding how those numbers are built. Many commercial fee schedules are pegged to a percentage of what Medicare pays for the same codes. Dr. Siddiqui's advice is to learn the Medicare allowable for your most common services, using CMS's public fee schedule look-up tool, and to use that as your reference point when negotiating.

Your leverage depends on local supply. In The Dark Side of Medicine he describes how a specialist who is one of very few in an area can often negotiate a rate above the Medicare reference, while a physician in a crowded market may be offered less, or may not be accepted into a network at all. Practical tips:

• Model rates for the twenty or so codes that make up most of your expected revenue, not the whole schedule.
• Ask about timely-filing limits, prior authorization rules, and how and when fee schedules are updated.
• Check the contract's term, renewal and termination provisions so you can revisit rates.
• Understand your expected payer mix: which insurers your patients carry, and how much of your volume will be Medicare, Medicaid and commercial.

Staffing, and the value of an administrator

In Dr. Siddiqui's experience, payroll is the single most expensive line in a practice budget. Early on, you will carry staff who are not yet fully busy, because you cannot see patients without them. Dr. Siddiqui suggests ways to keep that cost in proportion: share staff across locations that each run part-time, add staff only when patient flow genuinely requires it, and watch the schedule closely enough to hire before the backlog builds rather than after.

“Never underestimate the value of an administrator”

In the book he describes the day he realized he could not keep seeing a full schedule and run the front office, billing and hiring himself. Hiring a full-time administrator to run operations, HR and billing let him focus on medicine while still acting as the practice's chief officer on the few big decisions each week. Most physicians, he notes, are excellent clinicians and reluctant businesspeople, and that is fine as long as someone capable runs the business side.

Decide early whether billing will be in-house or outsourced to a billing company. Either way, you remain responsible for what is billed under your NPI. See our guide to billing, coding and denials.

Cash-flow runway

A new practice spends money from day one and collects slowly. Patient volume builds gradually, claims take time to be paid, and some will be denied and need rework. Plan for this:

• Build a monthly budget for rent, payroll, insurance, software, supplies and loan payments, then a realistic month-by-month revenue ramp.
• Assume collections lag visits by weeks to months, and that early months will run at a loss.
• Arrange working capital before you open, whether personal reserves or a practice line of credit, so you are not negotiating with a bank during a cash squeeze.
• Control supply costs. Dr. Siddiqui describes buying directly from wholesalers and pooling orders with other offices to reduce markups.
• Plan how patients will find you. In the book he describes building referrals through community talks and word of mouth, and the importance of a clear website. Any patient story used in marketing requires written authorization under HIPAA.

Buying an existing practice

Buying a practice can shorten the ramp, because patients, staff and payer relationships already exist. It also brings someone else's history. Due diligence should cover:

• Financials: several years of tax returns, collections by payer, accounts receivable aging and the owner's compensation.
• Payer contracts: whether they can be assigned to you or must be renegotiated, and the rates they pay.
• Compliance: billing audits, past payer recoupments, and any government inquiries. You may inherit liabilities depending on how the deal is structured.
• Lease and real estate: remaining term, renewal options and assignment rights. See owning your building.
• Staff and patients: key employees' willingness to stay and how much of the patient base is loyal to the selling physician personally.

Asset purchases and stock or membership purchases have different tax and liability consequences. An attorney and CPA experienced in practice acquisitions should structure the transaction, and an independent valuation is prudent.

Educational information only — not legal, financial, tax or billing advice. Consult qualified advisors. Laws and payer rules differ by state and change often; the descriptions here are general.