Five Challenges Specific to Private Practice Startups That Will Make You Glad You’re Not a Doctor

Launching a startup always comes with its challenges regardless of the product or service being offered, but physicians starting their own private practices have unique hurdles that and make their journey particularly difficult. With insurance company discounts, government mandates, crippling insurance costs, and seemingly endless amounts of administrative work the road to a private practice startup is not for the faint of heart. In fact, starting a private practice is so difficult that fewer physicians are going solo and we have the numbers to prove it. In a 2014 survey of America's physicians, only 35% of physicians described themselves as independent practice owners which is down from 49% in 2012 and 62% in 2008.

Wondering what it is keeping doctors out of the private practice business? The following examples of challenges unique to private practice startups should begin to paint the picture.

Challenge one: Feeling the squeeze from insurance companies

Making a wrong step with insurance companies can lead to unpaid medical bills and making this mistake multiple times has the potential to sink a private practice start up.  When making business plans, physicians must account for the time it will take them or the money it will take to hire someone to determine insurance coverage and submit claims. According to the Commonwealth Fund practices spent $82,975 per doctor in 2011 dealing with insurers. Patients’ insurance coverage will need to be checked before each visit as allowed procedures and discounting can change.

If the procedure is performed and goes unpaid by the insurance company, cost has the potential to blindside the patient. If the patient is unable to pay, medical collections is usually the unfortunate next step and can damage the relationship sending the patient elsewhere for their next procedure. In cases of personal injury, though, there are alternatives like partnering with the patient and insurance company to seek restitution from a third-party at fault through the legal system.

Challenge two: Emergency Treatment and Active Labor Act (EMTALA)

EMTALA is a federal law that requires hospitals to provide an examination and treatment to patients in need of emergency attention regardless of insurance coverage or ability to pay. For practitioners owning private practices focused on potentially urgent injuries like burn centers, EMTALA can result in the necessity of a large number of procedures performed in emergency situations on those without the ability to pay. Costs of these procedures can be written off as bad debt, but can exceed the amount offset by tax write offs. Too much bad debt can end in bankruptcy for a private practice.

Challenge three: Malpractice insurance

Medical malpractice insurance can be near impossible to afford and yet the cost of not having it is far worse. Therefore, it is a necessity to figure into the costs of starting a private practice. To put cost and perspective, in 2007, the average cost for malpractice insurance for OB/GYN doctors was $275,466 annually according to Mike Matray, editor of the newsletter Medical Liability Monitor.

Challenge four: Implementing ICD-10

ICD stands for the International Classification of Diseases is the “standard diagnostic tool for epidemiology, health management and clinical purposes” and is maintained by the World Health Organization. For 30 years, physicians have used codes from the ICD–9 for which software and operating procedures have been routinely set in place. As no doubt any physician starting a private practice knows by now, however, October 1 is the start date for ICD–10.

The change from ICD–9 to ICD–10 requires learning a large number of new codes which are often taught in expensive workshops and classes, investing in updated software, and educating the private practice staff. The cost of not being prepared and therefore entering the wrong codes into insurance claims systems is likely to result in claims being denied and a formidable bottleneck in receiving payments.

Challenge five: Time management

All start ups have to balance administrative and operational tasks with service and production tasks in a way that keeps cash flow healthy. However, one could argue that private practice start ups have a particularly difficult workload to balance. According to a 2014 survey of America's physicians, physicians spend 20% of their time on nonclinical paperwork alone. Paperwork includes insurance claims, reporting for Federal laws, and medical collections among other tasks. Add in clinical paperwork and time spent actually administering services and physicians have a challenging time management issue.

With all of the challenges facing physicians starting private practices, it leaves little to wonder why physicians are fleeing private practices for a hospital environment. Starting a company is always hard, but starting a private practice has an additional menagerie of obstacles making it so only the most tenacious will see it through.

Stephanie McGuinn works for Third Party Evaluation Services (TPES), a company that pairs medical providers with a team of experts to complete accident investigations and legal representation in order to seek financial restitution from negligent third parties at fault.

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