I remember the time I was a senior resident. It was the beginning of my final year of postgraduate training. I knew I had decisions to make. I was conflicted. Would I go into academics or would I go into private practice? This was the first question I needed to answer.
Throughout medical school and residency, the allure of academics and the urging of my professors had led me down the path of academics. The collegiality and sense of purpose with academics made this a difficult choice for me. I did not want to disappoint my professors. However, I wanted to get into private practice. Honestly, I wanted to make some money. It had been a long haul, and twelve years of education and training had brought me to this juncture. I had no debt, thankfully. But I had no money either.
My biggest concern was the same concern that many residents had: if I chose private practice, would my professors consider me a sellout? If I did not join them in academics, would their disappointment affect my ability to get a competitive job in private practice? I knew I needed their letters of recommendation to get a position after residency.
I was nervous when I finally decided that I would go into private practice. I had to tell the faculty that I would not be entering academics. I was hesitant to let them know that I would be looking for a job during my senior year of residency.
It turns out, after speaking to many residents, that these trepidations are common. Many during residency share them. However, these concerns are unfounded. The faculty are aware of and understand your situation. They are eager to help you get a job after graduation. Teachers know you must begin looking for work. You may feel like you are betraying an unspoken code of commitment to academia. You are not.
Planning for private practice should begin in your senior year of residency. And, if you are going to set up your own solo practice, then you must start at least ten to twelve months before you see your first patient.
Determining Practice Type – Group or Solo
Once you have decided to make the leap into private practice, you must decide if you are going to join a group practice or set up a solo practice. I wrestled with this decision for some time. At first, I thought I was better suited joining a group practice. I knew I had no private practice experience. I was worried because I didn’t understand medical billing. I was concerned that I might need “backup” if I didn’t know how to treat a patient. I didn’t think patients would want to come see me as their doctor.
It is easy to understand why most people choose group practices over a solo practice. These concerns and fears are universal. They are also completely unfounded.
As I prepared to enter the workforce, I went down the path of joining a group practice. I interviewed with several groups. Each group had a different personality. In selecting a group practice, I had defined my own set of criteria: the doctors had to practice medicine ethically, they had to be well respected, and the physicians had to tolerate various personality types. A group practice is like a marriage, and if there are personalities that conflict with your own, the odds are overwhelming that you will not be happy in that practice.
The experiences I had while interviewing were interesting. I won’t forget the time a senior partner of a large, well-known practice went out of his way to let me know that all the doctors in the group were expected to attend the same church. Although these were a nice bunch of guys, that was a red flag. It was too coercive and personal for my comfort.
The one group I liked the best happened to be the most successful and most respected group in our area. They entertained my wife and me with a very expensive dinner. All the partners were there. I was impressed. I felt that this group was an ideal fit for my personality. I was told that partnership would be offered. However, after I received the contract offer in writing, the details of the partnership and compensation were lower than I expected. It appeared that I would generate hundreds of thousands of dollars in revenue for their practice. I would only receive a fraction of the revenue collected. I would work for three to four years before becoming a partner. Partnership meant that I would be able to keep what I collected minus the cost of overhead. And yet, the overhead expenses included, amongst other things, rent in the building that some of the partners owned. The discrepancy in my income as compared to the amount of revenue I generated was so great that it prompted me to consider other options.
Solo practice was one of these options. I modeled out what I thought I could generate on my own in solo private practice. I accounted for seeing only a few patients at first. I still would make more money than I would if I joined the group practice. I realized that it did not make sense for me to join the most alluring, most well respected practice in our area. I politely sent a letter thanking the practice for my offer and their time. I committed myself to learning everything I could about starting my own practice. Ironically, that same group practice split up over the ensuing few years due to partner disagreements.
The lesson learned here is, don’t be influenced by the “glitz and glamour” (what I call “sex appeal”) of another practice. Analyze objectively, not emotionally, the offer you receive before accepting it. Do not get seduced by the practice size and appearance.
Group Practice: Analyze Your Options
I often advise senior residents to not sign an employee contract with any group practice the first year or two. Be an independent contractor and work part-time for a few different practices. You may spend two days a week with one practice and three days a week with another. You will learn all you need to about yourself and the practice in that time period. You will see if there are any “warts” in the practice. You will avoid contractual problems in the event the practice is not right for you. It is very common for doctors to sign an employee contract, join the wrong practice and regret their decision later.
Group Practice: Calculate Anticipated Income
If you are set on joining a group practice, make sure you understand the revenue model for owners, partners, associates and employees. Calculate the precise amounts you will make for the practice and make for yourself. You can estimate how much revenue you will earn by understanding how many patients you will be seeing per day. Multiply that number by the average amount billed or the average amount collected per patient. Subtract the overhead percentage from that total amount. That is what is left over for you and the practice. These numbers are readily available. The partners in the practice can provide them for you.
In order for this to be an accurate estimate, the amounts must be relevant for the type of practice you will have. In other words, if you will be mostly surgical or medical, then the respective fees projected should reflect that.
Understand what “partnership” means. If, as a partner, you have to pay overhead to other partners, then be cautious. Make sure you ask about “common” revenue earned and shared. For instance, lab revenue generated from the practice is considered common revenue. Find out how you share in that revenue as either a partner or employee.
Go through the exercise of analyzing amount collected versus amount received with any group practice offer. You will find more often than not that you will make more money on your own than in the group practice. The reason is simple. The group practice must make a percentage of the revenue you generate. The amount that it makes from your work will be the extra amount you would keep for yourself if you went into solo practice.
Aside from income issues, some specialists feel that they must join a group practice due to call and hospital coverage. However, now there are many “hospitalists” and other soloists that share call or provide hospital inpatient coverage with each other. The burden of call and cross coverage is much easier to overcome today than it was years ago. So, don’t worry about that.
Solo Practice: Set Up a Corporation
The first step you will need to take if you choose a solo practice is to set up a corporation, and the first step in that process is picking a name.
There are many theories about picking a name for your practice. You can pick a name that uses your real name and is very professional, such as John Doe, MDPA.
You can be creative and give your practice a fictional name, such as “Palm Beach Medical Institute.” You can do both. Use one as a corporate name registered with the state. Use the other name as a “D/B/A” (Doing Business As) name.
The name of your business should be short. It should be easy to remember and you should simultaneously purchase a web site domain name that closely matches your practice name. You can search websites such as Networks Solutions or GoDaddy.com to find and buy the right domain name.
You need to decide what type of corporation you will be forming. Businesses incorporate for many reasons, including tax advantages and debt and liability protection. In the event of a lawsuit, it is difficult for lawyers to puncture the “corporate veil” of a corporation. The corporate veil will protect your personal assets from debt or liabilities associated with the corporation.
There are a few different corporation types to choose from. Each structure has tax implications and liability implications. The corporation types that you may choose from are subchapter C corporations (C corps), subchapter S corporations (S corps) and Limited Liability Corporations (LLCs). The S corporation rules are contained in subchapter S of Chapter 1 of the Internal Revenue Code (sections 1361 through 1379). A C corporation is a corporation in the United States that, for federal income tax purposes, is taxed under 26 U.S.C. § 11 and Subchapter C (26 U.S.C. § 301 et seq.) of Chapter 1 of the Internal Revenue Code.
A C corporation carries the risk of “double taxation,” or tax on corporate income and on distribution of dividends to stockholders. In a subchapter S corporation, all the profits pass through to the shareholders’ (owners’ of the company) individual tax returns. This means that shareholders only pay taxes on these profits through their personal tax returns. This is similar for sole proprietorships and LLCs (limited liability corporations). The S corporation itself does not pay income tax. It is often the easiest election for a doctor to manage.
Once you have decided on the corporation name and elected a corporation type (i.e., S corp or C corp), you will need to write the articles of incorporation and corporate bylaws and create a board of directors. You will need the help of a corporate attorney for this. At this point, you will need to file and register your corporation with the state so that you can issue stock to shareholders. In a medical practice, you are usually the sole shareholder.
Don’t let these steps intimidate you. They are mostly boilerplate processes. Attorneys will do the work for you. There are “do it yourself” Web sites and forms for this. However, the few dollars an attorney charges are worth it. This will ensure that the setup process is done right from the outset.
The above represents excerpts from the first chapter of the book, The Medical Entrepreneur Pearls, Pitfalls and Practical Business Advice for Doctors (Nano 2.0 Business Press 2010) by Steven M. Hacker, MD