owning a practice not money maker?

[randomdoc1]

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I broke the news to the practice I work at, that I will take a shot at running my own place. Currently looking into office space, hiring staff, getting rTMS machine, SEO, re-credentialing myself, getting an attorney where needed, EHR, payment platforms, phone system, fax system, office furniture, setting it up to be LLC, etc. Understandably, the owner was sad about the news, asking if there is anything that can be done to retain me. I said I may very well come back, depending on how it goes, how big my family gets, who knows. But I have to just try or else I'll always be wondering. I figured the worst case scenario is it does not work out and I just join a private practice again, not terrible. But she said that having your own place is not a money maker? Maybe I am naive, I see it is a different kind of stress, and if you're not good at running a business, you probably won't get rich. I'm sure there will be some curve balls I didn't anticipate, but it seems doable. However, it looks like the biggest costs are the rent and any front desk staff you hire? Does anyone else feel that having your own place is not a money maker and it is very hard to make a comfortable income off of it? I'm hoping to up play the rTMS, hire therapists (eventually), psychiatrists (eventually), and then spend more of my time on managing the business. For example, I'll focus on filling up everyone else's practice with good quality clients. Will still see patients, but I thought if you have your own practice you can diversify what you do more. Seeing patient after patient 5 days a week gets tiring and I really am developing an interest in growing a business. And of course, it is always exciting when I read about the practices on the forum that really flourish.

 

[FlowRate]

It's definitely harder to fail at this in psychiatry, given the reduced overhead needed. Some people even set things up so that they don't really need front desk staff as long as they're going solo. (Do scheduling and such online/semi-open.)

 

[dl2dp2]

Understandably, the owner was sad about the news, asking if there is anything that can be done to retain me.

Why can't you ask for equity (or at least equity buy-in) of the practice and she can open the books for you to join as an equity partner? That seems like a win-win. Especially if you are gonna grow in a non-overlapping area (i.e. TMS).

FYI, if you want to open a practice, I would recommend AGAINST hiring front desk staff until it gets full. Also, from a business loan perspective, it's VASTLY easier to get a bigger loan when you have a revenue to leverage against.

 

[randomdoc1]

Why can't you ask for equity (or at least equity buy-in) of the practice and she can open the books for you to join as an equity partner? That seems like a win-win. Especially if you are gonna grow in a non-overlapping area (i.e. TMS).

FYI, if you want to open a practice, I would recommend AGAINST hiring front desk staff until it gets full. Also, from a business loan perspective, it's VASTLY easier to get a bigger loan when you have a revenue to leverage against.

I did think of the option you mentioned. However, the two owners, imho don't make great business decisions. One of them especially is very frugal and relatively comfortable in old ways which I don't think is conducive to business growth. For example, he did not want to set up automated reminders to reduce no shows, so I just do them manually. He doesn't turn on the heat in the winter. We don't even have a way of processing credit cards, we just write it on a slip of paper and send it somewhere. Neither of them believe in SEO and the front desk staff are not particularly good at given good experiences to clients in that messages are often missed and new clients looking to be scheduled are not followed up on. I just don't see much growth potential at this place. Otherwise, I would certainly stay. I'd actually prefer to if it wasn't for the growth issue. =/ The clinic is actually steadily losing business and the owners don't seem to have insight on how the competitors are steadily outdoing them.

 

[TexasPhysician]

Cash only can be cheap to set-up, but it takes longer to build the practice.

Insurance requires insurance contracts, more attorney help, and 2-3x the staff from day 1. It will fill faster though. You will need more start-up capital to hold you until insurances pay.

Success in private practice is more related to business skills. I’ve seen perfectly fine psychiatrists fail to develop a worthwhile insurance private practice. Contract work paid better for 1/3 the patient load and no admin hassles.

I’ve also seen psychiatrists develop a thriving practice netting $400 per hour.

 

[calvnandhobbs68]

If it didn't make any money then why would she be sad you were leaving...

 

[randomdoc1]

If it didn't make any money then why would she be sad you were leaving...

I generate a good bulk of their income. I saw their finances. Plus, psychiatrists are not the easiest to recruit. Especially young ones you hope to hang around for awhile. This clinic used to be hoppin’ but now they can’t afford the rent anymore.

 

[Stagg737]

Cash only can be cheap to set-up, but it takes longer to build the practice...

...I’ve also seen psychiatrists develop a thriving practice netting $400 per hour.

I did an outpatient cash only rotation and talked about the business model with my attending quite a bit. I was shocked by how low his expenses in a very wealthy area were. His overhead was less than $1,500/mo and he hired an assistant for around $30k/yr just to help with scheduling and collections (he could easily do it himself, it was just inconvenient), so total expenses less than 50k/yr. If he worked 40 hrs/wk and only charged $100/hr, he'd gross 200k/yr and still pull in over $150k/yr after expenses. Knowing his hours and what he was charging, I can say he was making significantly more than that.

 

[hamstergang]

If he worked 40 hrs/wk and only charged $100/hr, he'd gross 200k/yr

I know $100/hr was a low estimate, but I wouldn't use 40 hrs/wk in this equation. That means 40 hours of face to face time per week (at 50 weeks per year in your calculations). You need to work more hours than that for administrative tasks, to account for no shows, and to account for not collecting all you bill. Having 40 hrs billable time per week with only 2 weeks vacation is tiring.

 

[Stagg737]

I know $100/hr was a low estimate, but I wouldn't use 40 hrs/wk in this equation. That means 40 hours of face to face time per week (at 50 weeks per year in your calculations). You need to work more hours than that for administrative tasks, to account for no shows, and to account for not collecting all you bill. Having 40 hrs billable time per week with only 2 weeks vacation is tiring.

The 2 weeks vacation is an underestimate, just used that because it's a nice even number to multiply things by. 40 billable hours a week was basically what he did (slightly less, but by choice). It was cash only, so far less administrative work. He also didn't use an EMR, so no hassles there. 25 and 50 minute appointments, gave him a couple minutes in between each appointment to write his notes. His assistant takes care of pretty much all the administrative work, which was very minimal at his clinic. His clinic was also full 3 months out and if you didn't cancel an appointment 48 hours in advance he charged you. 3 no shows, you're out.

I realize my example was oversimplified, but the 40hrs/wk part was not. I was more pointing out how low the overhead and expenses could be and that it's easy for a cash only practice to be profitable.

 

[Ahamis]

I generate a good bulk of their income. I saw their finances.

I'm curious:
What were the percentages of collection for the psychiatrist versus the clinic?
80%/20%?

 

[randomdoc1]

I'm curious:
What were the percentages of collection for the psychiatrist versus the clinic?
80%/20%?

In my area the standard is 70/30. But...I was thinking of incentivizing that. Like 70/30 for first 50 or 100k and 75/25 for everything after.

 

[Ahamis]

In my area the standard is 70/30.

"having your own place is not a money maker"....

So they couldn't make profit out of it with a 30% collection from their side????

 

[PistolPete]

The 2 weeks vacation is an underestimate, just used that because it's a nice even number to multiply things by. 40 billable hours a week was basically what he did (slightly less, but by choice). It was cash only, so far less administrative work. He also didn't use an EMR, so no hassles there. 25 and 50 minute appointments, gave him a couple minutes in between each appointment to write his notes. His assistant takes care of pretty much all the administrative work, which was very minimal at his clinic. His clinic was also full 3 months out and if you didn't cancel an appointment 48 hours in advance he charged you. 3 no shows, you're out.

I realize my example was oversimplified, but the 40hrs/wk part was not. I was more pointing out how low the overhead and expenses could be and that it's easy for a cash only practice to be profitable.

Did he ever say how long it took him to fill his clinic? What % of visits were med management vs therapy?

 

[randomdoc1]

"having your own place is not a money maker"....

So they couldn't make profit out of it with a 30% collection from their side????

My point exactly. I used to want to be a partner. I approached one of the owners at one point and showed them a very affordable text reminder system, basically, if you save one no show, the reminder system has already paid for itself. He said no because he didn't like that it wasn't free. There were many other decisions made above that I don't think is conducive to business growth, but I'd think a reminder system is a must have to save potentially lost income, which made me question if we'd be a good match in the long run...

Maybe I'm naive, but I calculated what it may cost per year for rent as well as potential attorney fees to start up, credentialing services, etc. plus my husband will do some of my back office work. The costs don't seem that extravagant, and if I get to hire a psychiatrist or therapist and get a share...it looks potentially profitable to me...that and add in some rTMS (the cloudTMS system is on lease for $900/month it seems but even if you get one patient a month, that more than pays for itself).

 

[Stagg737]

Did he ever say how long it took him to fill his clinic? What % of visits were med management vs therapy?

I do not know how long it took him to fill his clinic, but I don't think it took as much time as people would think. However, he also set up shop in an extremely wealthy suburb and did both his residency and fellowship at very prestigious programs, so he had the name brand recognition. The nearby city also has a very significant psychiatry shortage to the point where it's a minimum 2 month wait to get into pretty much any outpatient clinic there (per several different attendings I rotated with).

He only did 25 and 50 minute appointments, most were 25. He incorporated some therapy into almost every visit, but also managed meds on all his patients. I'd say he adjusted doses/changed meds for about 1/4 to 1/3 of his patients, mostly just tweaks though. It was interesting for me because it was the most I'd seen a psychiatrist incorporate actual psychotherapeutic techniques into their practice whereas almost every other attending I worked with focused very heavily on the biologic aspect of psychiatry.

 

[dl2dp2]

My point exactly. I used to want to be a partner. I approached one of the owners at one point and showed them a very affordable text reminder system, basically, if you save one no show, the reminder system has already paid for itself. He said no because he didn't like that it wasn't free. There were many other decisions made above that I don't think is conducive to business growth, but I'd think a reminder system is a must have to save potentially lost income, which made me question if we'd be a good match in the long run...

Maybe I'm naive, but I calculated what it may cost per year for rent as well as potential attorney fees to start up, credentialing services, etc. plus my husband will do some of my back office work. The costs don't seem that extravagant, and if I get to hire a psychiatrist or therapist and get a share...it looks potentially profitable to me...that and add in some rTMS (the cloudTMS system is on lease for $900/month it seems but even if you get one patient a month, that more than pays for itself).

It sounds like you’ve thought this through. You’ll be fine either way, I wouldn’t necessarily jump into taking insurance. A colleague of mine started her practice without taking any insurance but with somewhat lower fees than the surrounding practices, and is filling her practice extremely quickly and now considering hiring an NP. The safer way is to start small and slowly build up in my opinion, but if you want to fill rapidly and you know the numbers, you can do some modeling and show the bank the numbers and they will issue a loan. Or you can self finance if you have the resources.

You are doing the right thing. That old practice is doing something wrong. Speaking as someone who owns the practice, my profit margin is quite healthy. (In fact, it is healthy enough that my accountant keeps pushing me to incorporate, but I'm just too lazy to do paperwork, and with GOP tax improvement for LLCs, etc...) Psychiatry practices usually have excellent profitability, I wouldn't worry too much.

 

[Attending1985]

In the future I’m thinking of opening up my own solo practice. I’m totally ignorant of reasonable rates for a cash only practice. We are planning a move in the next few years most likely to Minneapolis. Does anyone know what psychiatrists typically charge in the Midwest?

 

[Stagg737]

In the future I’m thinking of opening up my own solo practice. I’m totally ignorant of reasonable rates for a cash only practice. We are planning a move in the next few years most likely to Minneapolis. Does anyone know what psychiatrists typically charge in the Midwest?

The attending in a mid-sized midwest city I rotated with charged $200/hr.

 

[futuredo32]

I did think of the option you mentioned. However, the two owners, imho don't make great business decisions. One of them especially is very frugal and relatively comfortable in old ways which I don't think is conducive to business growth. For example, he did not want to set up automated reminders to reduce no shows, so I just do them manually. He doesn't turn on the heat in the winter. We don't even have a way of processing credit cards, we just write it on a slip of paper and send it somewhere.

I'm not saying you should go or stay. I have a small private practice. I am my own receptionist. I do have a biller (She sucks and I need a new one, but that's another story). I don't take credit cards and my patients don't have an issue with it. I give them a business card with the time of their next appointment if needed, but most put it in their phone. No one gets automated reminder calls. I do call my patients with dementia to remind them the day before. Everyone gets one freebie no show after I charge full fee for no shows, it is in the initial patient registration form they sign. I have a few patients who regularly no show, they reschedule, but I make a fair amount from the no shows. They don't forget. Something else comes up or my one patient who I am slowly changing his meds (he is on a ton of benzos and psychostimulants, I inherited him, ) and he is often sleeping when it's time for his appointment so his wife calls to cancel, he is my last appointment of the day and it's $175 a cancellation and there were 3 in a month. I have urged him to go to a pcp, get a sleep study, seek therapy. The last appointment I said I couldn't continue treating him unless he sees a PCP. gets labs and gets a sleep study, something his prior psychiatrist didn't ask for. I would be willing to bet he has sleep apnea and that is at least one reason he is so tired during the day. I am weaning him off some of the benzos, discontinued the sleep meds- he sleeps all day, he apparently doesn't need them. But as long as a patient reschedules, it is pretty profitable for me when they no show. I have a small space heater in my office as it is a little chilly in the building.

 

[PsyDr]

Ideally:

1) the practice as a business would make money
2) while you, as the practitioner, would not

 

[dl2dp2]

Ideally:

1) the practice as a business would make money
2) while you, as the practitioner, would not

I disagree with this. Yes, if you are running a multi-billion dollar megacorp. But in lucrative professional services firms, typically there's a pathway to equity partnership/ownership as a practitioner. Generally the associates and the firm partners should have interests that are aligned. Exceptions do occur, primarily when there's a excess of supply of labor, and when market condition is poor, where the partners control the flow of the work (e.g. pathology, rad onc, low level corporate law etc.). For the most part, however, if there's a demand for your service in the marketplace, professional services firms want each associate to build and grow their practice, and the bottomline is driven by per partner profitability, rather than profitability after employee salary (when you are selling a physical product), which is a fixed cost. The product is the service, so the more service you sell the better. This happens even in academia, where at senior levels your values are typically performance driven (i.e. grant support, service revenue growth, faculty hiring, etc). If you think of yourself as a fixed cost it's difficult to articulate a reason for your salary to be raised institutionally.

 

[PsyDr]

I disagree with this. Yes, if you are running a multi-billion dollar megacorp. But in lucrative professional services firms, typically there's a pathway to equity partnership/ownership as a practitioner. Generally the associates and the firm partners should have interests that are aligned. Exceptions do occur, primarily when there's a excess of supply of labor, and when market condition is poor, where the partners control the flow of the work (e.g. pathology, rad onc, low level corporate law etc.). For the most part, however, if there's a demand for your service in the marketplace, professional services firms want each associate to build and grow their practice, and the bottomline is driven by per partner profitability, rather than profitability after employee salary (when you are selling a physical product), which is a fixed cost. The product is the service, so the more service you sell the better. This happens even in academia, where at senior levels your values are typically performance driven (i.e. grant support, service revenue growth, faculty hiring, etc). If you think of yourself as a fixed cost it's difficult to articulate a reason for your salary to be raised institutionally.

If you disagree I can direct you to some high priced accountants, real estate agents, and attorneys who can explain how to:

1) pay the practitioner at the median for their profession
2) use a tiered LLC structure with a bunch of mous to pay the practitioner as owner in dividends, thus reducing their tax burden to 15%.
3) do something similar for a business condo. $3k/month in, dividends out.