How Long Until a New Private Practice Is Profitable?
- 4 hours ago
- 7 min read
Starting your own private practice is a nerve racking process, as it comes with a lot of unknown territories. For doctors who have always had a steady paycheck, one of the biggest questions is how many months it will be before their private practice starts generating a profit. We often see posts in our online physician communities from doctors asking, “How long should I expect before my private practice is profitable?” While the answer to this question will depend on several factors, below, we’ll cover what determines when a private practice becomes profitable, and general guidelines for what to expect (and plan for) when opening a new private practice.
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What does it mean for a private practice to be profitable?
Breaking even is not the same as being profitable. Breaking even just means that your incoming revenue covers your operating expenses, but being profitable requires not just that you cover operating expenses, but that you have offset your fixed upfront expenses which you paid out of pocket, and that you’re generating enough revenue to also pay you compensation for your work.
How long before a new private practice is generating profit?
The long answer is that it depends, which is what we’ll go into in the next session. The short answer is that most practice consultants advise that it will take at least 6 months to be profitable, but more likely somewhere around a year, putting the range for most practices to hit profitability somewhere between 6-12 months. Others can take several years depending on how they’re doing with patient acquisition and how much money they put in upfront. A typical timeline might look like this:
Months 1-3
You’re unlikely to be profitable during this time if you’re an insurance based practice, given that it takes time to get credentialed and contracted, and that revenue cycle management turnout is usually at least a month. Given startup costs and a developing patient base, you’ll most likely have downtime and you’ll be lucky if you cover costs during this time.
Months 4-6
This is the time your labor will start to generally pay off, with patient volumes starting to increase as the word gets out about your practice, and as you start collecting revenue from charges you billed out in the first few months. Typically, only the leanest or luckiest practices are overtly profitable at this point.
Months 6-12
Assuming that payments are coming in and patient volume has been steady (and that there weren’t huge startup costs), most practices hopefully hit profitability at this time.
Months 12+
If you weren’t profitable by this point, hopefully your investment in both money and time spent starts seeing results, and the inflection point where profits start outweighing expenses starts.
What are some factors that determine when a private practice becomes profitable, and how long it takes?
Every private practice is different, so it’s important to realize that the answers you see from other physicians to this question may not apply to you. As you create your private practice’s startup proforma, you’ll want to make sure that you’re comparing apples to apples when using other people’s experiences to shape your expectations.
Your upfront startup costs and investments
Before you can be profitable, you’ve got to offset your startup costs. These are going to be very different for a micropractice than a practice where you build a new 10,000 square foot building. If you invest a lot into your insurance, legal fees, location, technology, and equipment, your upfront costs are going to be a lot higher, therefore requiring you to make more money before you’re profitable. Ideally, you’ve secured enough financing to help you cover these costs without having to put too much of your own money in out of pocket.
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Your ongoing overhead expenses
Even when upfront fees are out of the way, chances are that you will have some significant recurring expenses when you’re running a medical practice. Obviously, the lower your overhead, the better chance you have of being profitable sooner as your revenue builds. Major expenditures to keep in mind include rent for any office or equipment leases, staff salaries, and any fix costs you have.
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Ancillary private practice income streams
Not surprisingly, the more sources of revenue that a practice has, the more money it likely has coming in. There are many revenue streams for new private practices to consider adding on that can not just help you achieve profits faster before pure patient visits pick up enough to cover overhead, but also which will set you up for long term revenue and income diversification.
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Your specialty
Depending on your specialty, the amount of money you bring in per patient as well as the amount of time it takes to build a large patient panel are going to be different. Specialties that have large waitlists in your region are going to fill their schedules much more quickly, and therefore achieve profitability much faster than practices that will require brand building, marketing, and establishing a referral network to get patients in the door. Additionally, some specialties generate more revenue per patient, and therefore will require less patients to become profitable.
Patient acquisition and demand for your services
Piggybacking off of the prior section, how quickly you are able to acquire patients is going to be key to determining how long you take before posting profits. Instead of relying on word of mouth, referral networks, and inherent patient demand (particularly in saturated markets), you’ll want to make sure that you actively market your new practice to get some momentum and offset those early costs.
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Insurance credentialing and contracting
If you’re not a cash pay practice, the only way to make substantial money is if the insurance companies will actually pay you for what you do. Delays in credentialing and contracting with payers can be one of the single biggest contributors to lag time in a private practice becoming profitable. If you aren’t in network with insurance companies, it’s going to make it harder to attract new patients in most fields.
The process of credentialing and contracting can take a long time. Often times it’s cited as 3-6 months, but it could be longer than this with some payers or in saturated markets. Unless you have some payers in place already, or if you have enough cash paying patients to keep your bills paid, you’ll have a hard time paying your bills from revenue generated during this time, let alone having enough left over to take home.
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Revenue cycle management efficiency
The last point we’ll bring up is that you have to be able to get paid for what you’re doing - and to do it quickly. Getting your RCM functions up and running efficiently is key to starting to see money come in the door. You’ll want to make sure you’re coding effectively and accurately, billing and submitting claims expediently, that you have appropriate systems in place to spot or track leakages, and that you’re getting paid what you bill out by addressing denied claims quickly.
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How can you expedite the path to profitability for your new private practice?
Above, we covered the things that impact profitability, so we suspect you can deduce what you need to make the practice profitable more quickly, but we’ll outline a few key points:
Secure financing that helps cover 6-12 months of operating expenses, therefore easing the pressure to be profitable as well as reducing your upfront startup costs that need to be paid off before you hit profit territory
Make sure you do insurance payer credentialing and contracting as early as possible, ideally having it complete before opening
Keep your overhead low upfront, hiring only essential staff and buying only what you need to see patients and deliver care. The rest can come later.
Invest wisely into patient acquisition, since you can’t make money until you have lots of patients coming in the door
Keep close track of finances and revenue cycle management, paying attention to key performance indicators such as trends in patient volume, collections numbers, claim denial rates by insurer, and overall overhead
Conclusion
Every practice is different, but you should make sure you have enough financing (as well as an emergency fund) that covers the first 6-12 months of your new life before you take the plunge into starting a private practice, as it can take some time before your practice is profitable (and especially consistently profitable). While there’s always some unpredictability in this process, having a proforma that maps out a realistic financial runway, controlling overhead, being proactive about patient acquisition, and creating efficient processes for revenue cycle management can significantly help to short that timeline and get you into profit territory.
Additional private practice startup resources for physicians
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