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Opinions on Practice Management

Neal Bhatia, MD

Starting a Private Practice: Benefits and Pitfalls

Neal Bhatia

Thursday, November 08, 2012

As we enter a new era of healthcare reforms, consolidation, and an increasingly unfriendly business climate for a small private practice, we have to reassess: What are the concerns for a dermatologist starting a private practice? Many residents, dermatologists who have been in larger group practices, and even those from academia, are now considering private practice options but are not sure where to begin.

Evolution or creation?

Much like the historical debate of evolution versus creation, the origins of private practice start with one's own practice vision and mission. A new practice evolves with time and initiative, often needing multiple steps to plan and strategize, and usually six months to a year of planning, financing and the struggles of keeping the dream alive.

By contrast, a practice can be created almost overnight by buying someone out, setting up in an underserved area or having an agency or family member do it while you maintain your current job or training. As easy as it is to join a group and buy-in later, the pride of ownership comes from the realization of one's initial vision. Of course, the young newbie to the world of private practice has to know that it will never be like residency, so it is important to duplicate the good things and improve on the bad things.

Charting, staffing, efficiency and flow are lessons to be learned in training, but essentially, the expenses, losses and waste all come out of the owner's pocket. When the revenues do not show up for the first 3-6 months while the bills are mounting, it is critical to remain calm, and grow slowly but efficiently. In addition, the personal questions have to be answered: Is this where you want to live, raise a family and become part of the medical community? Does this place need another dermatologist? And do you have the patience and perseverance to weather the storm?

Location, location, location

The simplest rule of business success is to know your market, and plan a location for a business where the market will be in your favor. Understand market saturation, the potential to cultivate a referral base, and manage the expense and overhead issues with the location. Proximity to hospitals allows for cohesion with other specialties, as well as access to referrals from primary-care clinics that serve the area. Conversely, it might be wise to avoid starting a solo practice in an area dominated by groups or managed care clinics that might not use your services. For example, if the emphasis of the clinic is aesthetics, then a location away from higher populations of Medicare and Medicaid patients might be best, but also be aware of day spas, as well as locations where there is not much "vanity money". 

In any case, this will be at least a 5-10-year plan if not lifelong, so understanding the community and the potential for either positive or negative growth is imperative. Starting out slowly and adding is a much safer and cost-efficient strategy, than coming out of the gates with everything to offer, especially when that market is not tested. Aim to please by adding services that are new, but not all at once, as the untested market demographics new to cosmetic services may not respond to a blitz of marketing. More importantly, the overhead has to be considered in the cost/benefit ratio and its impact potential on stimulating practice growth. Tracking your success from advertising, such as internet, radio and print, will also help streamline how best to approach the market.  

Analyzing the medical dermatology practice is just as pivotal. Monthly assessments should identify the best and worst plans, reimbursements for the top 25 procedure codes and fees, and which plans are the top 10 payers. Regular updating of spreadsheets that include codes, charges, allowables, reimbursements and other parameters should be part of the office managers' monthly report. Occasional calls to check which plans are predominant from referral offices help to keep track of who the primary doctors are seeing.
It is also important to know marketing strategies that will put the practice on the map without breaking the budget.

Marketing: Make a Big Splash!

Know your Ps

  • Product
  • Price
  • Place of service
  • People (patients and personnel)
  • Plan
  • Then finally‚ĶPromotion

Know your Cs

  • Costs
  • Credibility
  • Communication skills
  • "Crew and contacts"
    • Front office-could be negative first contact
    • Back Office-need to support the cause
  • Consistency-promises must be kept
  • Closure and Conversion
  • Collect tracking data

Things to know

  • Know the base
    • Cosmetic patients, ages, ethnicities
    • Referring sources
  • Know the competition
    • Other dermatologists
    • Non-dermatologists and non-physicians
  • Know the budget
    • Takes money to make money
    • Need to get the word out somehow
  • Aim to please
  • Adding services
  • Not all practices need the same service
  • Know your market
  • Know your office
  • Know what you want
  • Price, cost/benefit, impact potential
  • Start out slowly


SWOT analysis

The SWOT analysis is the framework for a business to base its forecasts and learn from its mistakes. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.  Some important considerations for each category include:

  • Access
  • Efficiency
  • Friendliness of environment
  • Diversity
  • Options for care
  • High-tech office
    • EMR
    • Website/online registration


  • Location - not great for cosmetics
  • New dermatologists trying to take referrals
  • Lower volume potential unless expand
  • Who pays the bills during vacations or long meetings?
  • Not time to become efficient without closing office for training


  • To be the source for cosmetic dermatology
  • To make referral base consistently pleased
  • To expand if necessary but also keep small office feel as an advantage
  • To optimize clinical trials and timeshare in other parts of town


  • Issues with staff retention
  • IT issues
  • Local competition
  • Issues with patient insurance
  • Staff or owner burn out


How will the story end?

Despite different beginnings, both the creation and evolution models lead to similar endings, as the destiny of the practice has to be considered almost routinely. Is the goal to build something and maintain it, make a dermatology group, or sell to a hospital system or multi-specialty group?  And who is going to help? Although all the usual stresses of family and work life are magnified in one's own business, and it is vital that issues from work are not brought home (and vice-versa!), most private practitioners would agree that the support of a family member, spouse, or someone trustworthy is critical.

So how will the story end? Deciding on a new location, being patient as a new business grows, and managing family life, are just a few of the factors to consider when weighing up the personal costs and benefits of starting a private practice - but if you can avoid a few of the pitfalls, the rewards could be bountiful.

The next article from Dr Neal Bhatia will look at the management of office politics in a new private practice.