COVER STORY

Going solo: How four doctors are making it work

By Ken Terry
Senior Editor

Many physicians are leaving groups to start small practices of their own. It's not easy, but those we interviewed are glad they did it.

More and more doctors are bucking the trend: They're leaving groups to set up solo or two-doctor practices. In doing so, they're becoming entrepreneurs for the first time in their lives. While there's financial risk in flying solo, it's also possible to earn more on your own than you did as an employee or a partner in a group practice.

Why are physicians quitting groups? "Extraordinary frustration with inept management, excessive overhead, and unhappiness with their partners," answers Karen Zupko, head of a Chicago consulting firm. Marge Smith, a consultant in Pueblo, CO, sums it up this way: "They want more hands-on control."

Of course, not all group practices are mismanaged, and thousands of doctors are content in well-run groups. But a combination of factors—including the bankruptcies of practice management companies, the inability of hospitals to manage physicians profitably, and the greed of some physician practice owners—have driven a growing number of doctors to strike out on their own. (If you're thinking of joining them, see "Going solo: Start-up basics.")

Here are the stories of four who made the leap: how they did it, and what it cost them.

Paul Reinbold knew he could do it better

After graduating from residency, internist Paul M. Reinbold, 36, spent two and a half years working for a hospital in rural eastern Virginia. The hospital set him up as a soloist in a huge office that the hospital had spent $300,000 to renovate.

"It was big enough for a four-doctor practice, but they told me, 'You need to cover all your costs,' " he recalls.

The hospital stumbled in a couple of other areas, too. First, the receptionist it assigned to Reinbold embezzled $20,000 from the practice. Then the hospital was unable to bill Medicare for the services Reinbold performed in his first six months; it sat on the bills for six months after the filing deadline had expired, waiting for CMS to certify the office as a rural health clinic. But, according to the hospital, none of this explained why it was losing money on Reinbold; it blamed him for not seeing enough patients.

Fed up, Reinbold switched to a primary care group owned by a hospital in eastern Maryland. Again, poor management caused the group to run huge deficits. The hospital decided to stop paying salaries. It told the doctors they could keep whatever remained after expenses. There was only one catch: The doctors had no control over collections or overhead. "Of the 40 doctors in that group, 10 left to join other practices or left the area, and the rest went out on their own," says Reinbold.

When his annual compensation dropped from $120,000 to $57,000, Reinbold decided the time had come to go solo. Fortunately, the hospital let him out of his restrictive covenant, so he could keep his patients. It sold his office equipment to him for $5,000; he bought the other equipment he needed for another $5,000. Not counting his initial payroll, office rent, and living expenses, it cost Reinbold just $15,000 to start his practice.

It helped that the hospital had paid off Reinbold's school loans. In turn, he'd signed an agreement to repay the hospital if he didn't remain with the group for seven years. But Reinbold was able to get the agreement changed so that he just had to stay in the community to eliminate his debt.

By the time Reinbold started his practice, he'd already bought malpractice insurance, formed a limited liability company (using an Internet service that charged him $150), and applied for a Medicare provider number. That didn't come for two months, but he was able to bill for those claims later. Commercial plans pulled him onboard pretty quickly, and his patients all stuck with him.

Reinbold's only employees are his wife, who's his nurse, and a receptionist who worked for him in the hospital group. The receptionist handles invoices and coding, sending claims to a billing service that collects 93 percent of net charges in return for 6 percent of collections.

He pays his receptionist $30,000 a year and provides health insurance (for now, that means covering her COBRA payments). Moreover, he's putting 20 percent of her gross salary into an IRA. "It's generous, but I believe you get what you pay for. She has a lot of responsibility, and she works hard."

Reinbold now earns about $90,000 a year from his practice; his wife earns another $32,000. He provides patient care about 30 hours a week. He also does workers' comp exams and serves as chief of staff at his hospital.

Limiting his practice overhead to 50 percent of collections explains part of his success. He's also raised his fees.

Reinbold feels vindicated by his success. He's making as much from his practice as he was when he joined the Maryland group, while working far fewer hours. That proves that the hospital was wrong about why it lost money on him, he says. It was only when he was able to call the shots that his practice became profitable.

Craig Wax is in charge of the care he gives

Mullica Hill, NJ, FP Craig M. Wax, 36, also worked for two groups before embarking on solo practice. But Wax's transition to solo practice wasn't as smooth as Reinbold's. Wax's groups enforced their restrictive covenants, and he had to launch his practice with only a handful of patients. After two years, his practice is still just half of what he could reasonably handle. But he's working hard to build up a full roster, and he's confident that, in a year or two, he will.

Right out of residency, Wax joined a group of two family doctors who had one other new associate. "The senior partner kept saying, 'We have to make more money because you guys are expensive,' " he recalls. Wax had no idea about the expenses of running a practice, but he didn't like being told he could spend only 15 minutes with a complex patient who required half an hour. He also felt uncomfortable about being told to read his own X-rays without having a radiologist review them. So he left after a year.

His second group—located a considerable distance from the first because of the restrictive covenant—was owned by three doctors. Wax was one of two associates. Although he was promised a partnership, he says, "The principals had had six associates over 10 years, and nobody had ever become a partner."

Disenchanted with group practice, Wax decided to open his own office. It was eight miles from his former group—just two miles beyond the noncompete zone specified in his contract.

Not counting his living expenses for the first couple of months, Wax spent about $25,000 on the start-up. At first, his wife ran the front office. Six months later, he hired a part-time employee to work the front desk. His wife now serves as office manager and bookkeeper, doing payroll, paying invoices, and keeping tabs on a billing service. "My wife's support and an excellent billing service made it possible to reach my goals."

Wax is his own medical assistant. "If a urine needs to be dipped, I dip it. I take the blood pressure. I weigh the patients." While he'd prefer to have an MA, he says, "I'd have to see another patient each hour in order to hire somebody. And because my volume isn't full, I can't afford to do that."

For the first year, says Wax, he made just enough from his practice to cover his overhead. Moonlighting in an urgent care clinic and a couple of other family practices paid his personal bills. The practice was open only three and a half days a week, but he made sure to include night and weekend hours to accommodate his patients' schedules. Now he's open five days a week.

Despite his low costs, Wax's overhead is 60 percent of his collections. He expects that figure to drop to 50 percent once he fills his practice. Wax enjoys his work now more than when he belonged to a group. "I made some lifestyle and ownership choices just to be more in charge of the care I render," he says. "That's the difference between going to work happy or frustrated."

Brian Nadolne believes involvement pays off

Family physician Brian K. Nadolne, 35, joined an FP group out of residency, he says, "because it was the thing to do." The Marietta, GA, doctor says he soon regretted his decision.

The practice was comprised of two owners and two associates. Nadolne received a straight salary and supposedly was eligible for a bonus. But the only way to get a bonus, he discovered, was to follow the partners' example and charge patients in a way that was inconsistent with his practice style. "I didn't think it was the right environment for me."

After six months, Nadolne switched to another group run by a "salesman-type" doctor who promised him the moon. The group opened an after-hours clinic staffed solely by Nadolne. It was far enough from the first group to get around his restrictive covenant.

The practice included 10 associates—none of whom had ever bought into the partnership. The reason soon became apparent. While Nadolne got a straight salary for the first two years, the owner's management firm took 15 percent of his charges in fees. Since it did a poor job of collecting unpaid claims, his accounts receivable eventually exceeded $200,000. As a result, his personal P&L statement showed a huge loss. If he'd bought a partnership, that loss would have been tacked on to his buy-in cost. And he still wouldn't have had any say in how the practice was run, because the management company called the shots.

Disgusted, Nadolne borrowed $60,000 from a bank and started up his own practice on the north side of Atlanta. Some of his patients from his former group on the south side followed him, but for the most part he had to rebuild his practice.

Nadolne marketed himself through community involvement. He became active in his kids' school and his synagogue. He and his wife recruited patients from the barbershop choruses they sing with. Nadolne bought 100 cakes on St. Patrick's Day and handed them out to all the local pharmacists and family physicians. He visited the doctors' offices and got to know their staffs. The effort paid off. Nearly a third of Nadolne's patients have been referred by other physicians who were too busy to take them on.

When Nadolne went solo, he had some tables and other furniture. He bought equipment, including a computer system and an X-ray unit, for $13,000. Improvements to his office suite cost $15,000.

At first, he had just two employees: a medical assistant and a billing clerk, both of whom covered the front desk when they were free. At that point, he was seeing 10 patients a day. Now, after two years in solo practice, he's seeing 25 to 30 patients a day. He has two MAs, one of whom does billing part time, and two receptionists.

Nadolne stopped drawing on his credit line to cover his payroll after six months. By the end of the first year, he was able to set aside money above his own salary as a reserve against expenses. And he's making about 40 percent more than he did in the groups he worked for. He attributes that not only to controlling expenses but to staying on top of collections.

"It takes some physician involvement," he says. "You can't just sit back and say, 'My manager takes care of that.' It's your money."

Carl Bartecchi swears by consultants

More than 30 years ago, internist Carl E. Bartecchi, 64, co-founded the Southern Colorado Clinic in Pueblo. In the early '90s, he and his partners sold the clinic to PhyCor, a leading physician practice management company. PhyCor improved the group's management, and physician incomes rose a bit. But then the PPM got into financial trouble and turned the 45-doctor group loose.

With overhead approaching 70 percent, the physicians watched helplessly as their salaries shrank. Many left the group, and finally Bartecchi and another internist decided to launch their own practice.

They hired local consultants, paying them $7,000 over the course of a year. The consultants introduced them to an accountant, an attorney, and an insurance broker, recruited and trained employees, arranged to have a phone system put in, helped the doctors choose a practice management computer system, got them Medicare provider numbers, and told them what they needed to know about compliance with government regulations.

Since Bartecchi and his partner didn't have noncompete agreements with the clinic, they brought all of their patients with them. They didn't have to do any marketing, and had good cash flow within a couple of months. Still, they had to pay their staff, rent, malpractice premiums, and living expenses for several weeks before the money started coming in. All of that cost about $43,000.

Other start-up expenses totalled about $32,000. Those included the consultants' fees, $700 for an attorney, $11,000 for new and used equipment, $2,700 for phones, and $10,000 for a practice management system.

Fortunately, the physicians had enough savings so they didn't have to borrow money—and the return on their $75,000 investment has been outstanding. Even though their practice is 75 percent Medicare, they're taking home nearly double what they were in the group.

Bartecchi praises the consultants for staying on top of billing in the early months. "They made sure the bookkeeper sent bills out at the end of every day. She made sure the coding was right, and had us fill out anything we missed." The practice's accounts receivable, he adds, are running at about $50,000. Of that, 90 percent is under a month old, and only 3 percent is older than 90 days.

Overhead is 44 percent of collections. One reason it's so low is that, aside from Bartecchi's wife, who serves as a part-time office manager, the office has only four employees: two medical assistants, a billing person, and a receptionist. The practice provides them with health insurance and a 401(k) account, and gave each of them a $1,000 bonus last year.

"Patients are much happier in my new practice because they get personal attention," he says. "We hired excellent people, and the patients love them. We have a better phone system. Nobody's put on hold. Everybody talks to a person. And our patients can be seen the same day they call."

Bartecchi views his move as an unqualified success. He doesn't work too hard and has plenty of time for teaching. He also visits Vietnam once a year to help train physicians there in intensive care. Back in his days with the clinic, he says, he had to dip into his savings to do that. Now he can fulfill his personal mission and still live well.

 

Ken Terry. Going solo: How four doctors are making it work. Medical Economics May 9, 2003;80:106.