Managing your money--Real stories from real doctors Part 2: Patients and toilet paper--doing it all in private practice

Changing toilet paper rolls. Fretting about margins. Analyzing net collection rates. If you had told Dr. Sarah Baroody, an ophthalmologist who owns a solo practice in Danbury, CT, that she would be spending as much time jugging these roles as she did seeing patients in her private practice, she would have told you that you were crazy.

"It hasn't always been easy," says Dr. Baroody, who started her business 13 years ago after graduating from medical school. With a small loan, she sub-leased a retiring ophthalmologist's office—and all his equipment—in her hometown and quickly found herself seeing patients. What took longer, she says, was overcoming the steep learning curve required to manage the business aspects of running a private practice.

"Occasionally I feel like I'm running a three-ring circus," says Dr. Baroody, who says she's sometimes kept awake at night worrying about a staffing issue or whether she's got enough insurance.

"They teach you zilch about running a business in medical school," Dr. Baroody says. "It can be so daunting that I see why some people wouldn't want this kind of life."

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To read Part 1: Paying off your student loans, click here.

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Experts predict that small private practice owners like Dr. Baroody are a dying breed. More than 50% of physicians are now employed by hospitals or large health system organizations, with the percentage being higher in some specialties, according to the Medical Group Management Association (MGMA). One reason is that more physicians who are just starting out in their careers are opting to become employed by hospitals as a quick (and presumably easier) way to jumpstart their careers. But a healthy percentage of physicians in private practices have also opted to take down their shingles and become salaried employees themselves. And still others (about 7%, according to the Physicians Foundation Survey) have switched to a direct primary care or concierge model, in which third-party payments are reduced or eliminated and patients shell out their own money for their care.

April Brisette, chief lending officer for Bankers Healthcare Group, a provider of financial solutions for healthcare professionals, says the number of physicians she's worked with who have recently left their private practices to take on salaried positions is "astounding." BHG's physician client base traditionally had been made up of about 70% private practice owners and 30% salaried. In the past 10 years, "that number has done a complete flip," Brisette says. Why the change? Some physicians might be swayed by money early in their careers. A MGMA survey notes that specialist physicians earned a first-year salary of $300,000 in a hospital-owned practice, versus $275,000 in private practice. And the changing insurance landscape has spooked some private practitioners as well. Indeed, "freedom from regulatory pressures" is one reason many physicians cite for leaving private practice, according to Matt Pate, senior vice president for Physician Strategy Group, an advisory group for physicians.

Dike Drummond, founder/CEO of The Happy MD, a firm that trains physicians to avoid burnout and become better leaders, suspects that the reason that many physicians give up their private practices to become salaried employees "is that they just can't take the business headaches anymore."

Drummond, a former family practice doctor in Mt. Vernon, WA, worked for a large firm that accepted nearly 50 different types of insurance and was led by a CEO who ran the business. But he estimates that only about 40% of doctors in private practices are big enough to afford a professional business manager. Dr. Baroody only has five employees on her payroll—two front desk managers, a scribe, a technician, and a file clerk. With such a lean staff, she says, other jobs that need to be handled, like navigating collection problems, fall squarely in her lap. Recently, Dr. Baroody even found herself staying up late at night ordering carpet samples. "You constantly are thinking there's somebody else to do that for you, but sometimes there just isn't," she says.

Jake Serfas, lead financial strategist at O'Dell, Winkfield, Roseman and Shipp, says physicians who want to survive—and thrive—in private practice try to regularly benchmark their businesses against similar firms. (See sidebar below, "Know the Numbers"). They also should be vigilant about their profit margins, he says. For example, Serfas recently worked with an oral surgeon to calculate exactly how much money he made for each type of procedure; he eventually assigned the less profitable procedures to other physicians he'd hired, and he only agreed to do the most lucrative procedures for hospitals with whom he contracted.

Jim Dahle, founder of thewhitecoatinvestor.com, a website that provides financial advice to physicians, often finds that the practice owners he works with are under-insured. Although many have disability insurance for themselves, he says, some don't have "key person" insurance on essential employees whose sudden absence might sink the company. Others neglect to pay themselves first and then are surprised at the end of the year to have less take home pay than they'd expected. And still others make the mistake of not investing enough in their own 401Ks, or set up retirement plans for employees who are too expensive. "Honestly, most of the advice I'm providing to private practice physicians is finance 101," he says. "It's basic stuff that they don't take the time to learn."

Dahle says he's constantly coaching physicians who own their own practices to spend more time on their businesses. "You literally have to build in days where you don't see patients so that you can focus on making sure you're making money," he says. "But some doctors don't want to do that. It's not what they signed up for."

That was the case with Dr. Tamara Mohuchy, a radiologist who works for a large health system in Bedford Hills, NY. Dr. Mohuchy began her career in the 1990s working as a partner in a small private practice. But Dr. Mohuchy eventually realized that spending time in business meetings was not why she had gone to medical school. Although the office was relatively small, decisions like what equipment to purchase or how to market the practice became "exercises in exhaustion," she says. "Meetings were filled with drama and hostility, and everyone was trying to lobby you to their side." And although all of the partners were making high incomes, Dr. Mohuchy explains, there was always the threat of lost revenue if a physician couldn't collect from insurance companies.

Eventually the group imploded, and seven years ago Dr. Mohuchy joined the staff of Northwell Health, an institution that employs more than 100 radiologists. "I'm a worker bee now," she says of her career move. "I just show up for my shift and don't make any big business decisions. I get to finally focus on the medicine, which is why I entered this profession in the first place."

But for some physicians, like Dr. Baroody, maintaining a private practice is worth the business headaches. One big payoff: autonomy. For Dr. Baroody, that means developing her own care philosophy and clinical standards and spending as much time with her clients as she'd like.

She also has the freedom to set her own hours, working half days on Mondays and taking off many Fridays. And she arranges her schedule so that she can get her two children, ages 9 and 11, off the bus three times a week.

For Dr. Baroody, the trade-off is worth it—even if it means she sometimes has to change her own toilet paper rolls. "Some physicians hate all of the business stuff, but I don't mind it," she says. "The freedom is worth all of the headaches."

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Sidebar: Know the Numbers

Here are some benchmarks physicians should consider when gauging the health of their private practices, according to data from the MGMA's "Performance and Practices of Successful Medical Groups":

Staffing: Most private practices are understaffed, according to the report. Better-performing practices reported 6.33 clinical support staffers per full-time physician, compared with 4.31 in other groups.

Net collection rate: High-performing practices collect very near 100% of their adjusted fee-for-service charges, according to the report. Each percentage point below that could results in thousands of dollars in lost revenue per physician, per year.

Profitability: Better-performing multi-specialty practices reported a lower operating cost as a percent of total revenue than other groups (56% versus 70%), the report notes.

Collections: Better-performing practices reported collecting receivables more quickly than their colleagues, with only 8% of their total accounts receivable in the 120+ day category.