Setting up a new dermatology practice is a challenge, regardless of where you are in your career, whether it be straight out of residency or several years later. My goal is to offer you several tips to help you understand the various activities involved and the most critical steps in the process as well the costs. Setting up your own practice involves many steps and decisions, but it’s best to group them into several broad categories: 1) organization; 2) finances; 3) staff and resources; 4) quality of care and outcomes; 5) compliance.
One of the biggest setbacks to starting your own dermatologic practice is the start-up cost. The actual costs vary greatly, even if you are planning to start up shop in a place close to home. Some differences relate to local economic factors including leasing office space and wage rates that vary by location, while others are more influenced by the “style” or type of practice you want to lead. For instance, a medical dermatology practice will have less start-up costs than a cosmetic, procedural or surgically based derm practice simply because it needs less equipment and tools. Community competition, income goals, work hours and marketing expenses will also affect costs.
Often overlooked expenses include the cost of capital – how the practice is going to be paid for. Another large issue when starting a practice is the lack of revenue initially; a stark contrast to joining an existing practice where the existing practice patients and the insurance contracts in place provide an immediate stream of revenue. Starting a new practice means preparing to develop an ongoing patient flow and preparing for delayed reimbursement issues from third-party payers. Although these issues can become a significant obstacle to initial success, they can be overcome eventually.
These factors may produce a drain in your finances, which may lead to the need to borrow from a bank in order to meet ongoing overhead expenses such as office rent, employee salaries and benefits, and medical supplies. The reality of starting a new practice is that nothing is for certain, particularly when it comes to cash flow. What complicates the issue even more in comparison to other new businesses, is the existence and fluctuation of third-party payers, particularly issues such as a delay or denial in payment combined with varying discount rates, which can significantly lower the amount you expect to get paid. Paying salaries and overhead costs can quickly deplete your cash reserve, which might turn into a negative balance and nothing to cover expenses with.
Predicting cash flow when starting out a practice may just be an estimated guess, but it helps you budget your financial goals. Then, if you’re not meeting your financial goals, you can make adjustments.
In summary, building a new practice takes time and consideration of the finances and expenses involved. While undergoing a new business venture such as starting a new practice, stressors are high, but it has been done many times and is typically an endeavor that’s done best alone. For instance, expecting enough revenue to support both you and several partners is probably unrealistic for a start-up practice.
If you prefer to work in a group practice, it may be better to join an existing practice – this can also alleviate several of the above concerns regarding cash flow. The biggest benefit of joining an existing practice is the steady patient flow and guaranteed salary. There is also decreased financial risk.
Regardless of what path you choose after residency, make sure it is the right one for you and not a rash decision based on the need to pay off large medical school debt, meet financial obligations, or for a security blanket. When thinking of the “right path,” consider not only financial factors, but also other valuable aspects of life such as personal time, family and location. Also, consider the environment and ambiance of the practice as well as the mentality and mindset of the other doctors, particularly if you are considering a buy-in option. Determine the strengths and weaknesses of the practice, learn its history and gauge if you share similar priorities with the other physicians in the group.
Regardless of what decision you make, there are endless options – make sure you’ve done your research and determine what best fits you! Trying out both options to see what works is an increasingly popular choice many graduating dermatologists are looking into.
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