By Michael Tetreault, Editor-In-Chief
Last Updated: JUNE 20, 2014 — Physicians and industry experts alike will unanimously tell you as they tell us, that jumping into the Direct Primary Care (DPC) medical industry without first understanding the effect it will have on your personal financial situation is a serious mistake. As an independent resource and industry news journal, we hear from countless doctors each week sharing their successes and yes, their failures with us about their entry or exit from DPC. Too many DPC start-up doctors and practice owners I’ve spoken with personally, haven’t taken the time to calculate the real financial impact this new business model, it’s relationship or disconnection with local payors, patients and vendors it might have before jumping in with both feet.
“I think a lot of doctors mistakenly believe that when they start a DPC practice there will be money coming in right away,” says one DPC business advisor in an interview with The DPC Journal this week (06/10/2014). “You can certainly hope there will be some revenue soon and that patients will be enthusiastic about your new program(s), but a lot of doctors need to really evaluate patient interest levels and their local demographics because for the first few months, there’s probably not going to be enough revenue and interest that’s going to occur to pay yourself. That’s a hard reality but it’s the truth. Let’s be realistic.”
From a personal financial perspective, there are three major questions you need to ask yourself:
What If Your DPC Practice Fails?
Yes, it’s important to always think positively about your DPC startup or transitional venture, but you also have to be realistic, by planning for the worst-case scenario. That’s Business 101. So what are you going to do if your DPC practice fails? You’ve lost both time and financial investment; can you live with the consequences?
Consider your age.
How long do you have to rebound financially from a failed business? The younger you are, the better your chances are of recovering. However, most successful and currently thriving DPC doctors are age 53+ according to DPC Journal surveys and polling analyses. While the motivation to start a DPC practice as a young medical resident or within the first 5 years or practice is clear, most young physicians who do not have at least 10-years of experience and a patient-base upon which to start with fail in the first 18 months because of insufficient capital.
“The road was much more difficult than I expected, but also much more satisfying,” adds DPC doctor, Rob Lamberts, MD from Augusta, GA. “I spent much of my time learning what doesn’t work, but in the end learned that most good ideas grow out of the remains of a hundred bad ones that didn’t survive.”
For the more veteran physicians, industry physicians and business advisors warn doctors to be very careful about using retirement savings for the initial capital your DPC business needs, especially if you are over 40. Beyond a certain point, it becomes difficult to rebuild your retirement nest egg. Also, keep in mind the taxes and penalties that may be imposed should you decide to tap into those funds. I know that when you need money to get started it is tempting to dip into that pot, particularly when you are confident your business is going to be a success.
According to recent DPC Journal surveys, approximately 27% finance the startup costs of their DPC venture by leveraging Personal Assets (savings, house, 401 K, etc). 14% use Traditional Lenders (bank loan, credit union loan). 7% use some form of Crowdsourcing and others sell investment propert(ies) previously obtained and pick up shifts at an Urgent Care Center (UCC) or ER.
How Long Can You Survive?
In the early stages of most DPC practice, most physicians tell us that do not generate enough money to pay the owner a salary in the first 18-months, so in your financial assessment you need to consider the likely loss of income.
“I perform a thorough analysis of the practice and determine areas where expenses will be reduced,” said Mike Permenter, Executive Vice President and Chief Development Officer at MedFirst Partners LLC. “After a survey of the physicians patients, we conduct a 12-16 week conversion. Our fees are collected during the transition only. Once a successful conversion has been completed, we help train the physician staff to provide membership services. If customer service is maintained, we know the practice will continue growing without a need for further services.”
Most doctors currently practicing membership medicine and DPC as a career choice fall into one of two intelligence-gathering categories when they first opened. First, they used a cookie-cutter consulting company to help them with the details of startup, technology, transition, graphics and messaging. Second, doctors opted to do it themselves and thereby surrounded themselves with a trusted, local team of advisors that would provide wise counsel in starting this practice model. The DPC Journal estimates that approximately 67% of DPC doctors have chosen the ‘DIY’ or second option.
Most experts recommend that you do not delve into living expenses saved before you launched your DPC practice. If you have a spouse or significant other who can support you or share expenses for a while, that will certainly make the transition easier. But it also means that whoever is going to cover the bills for a while needs to be as committed to your business model and you ability to follow thru.
A 2012 Medscape study found that the average salary for a primary care physician ranged from $156,000 to $315,000, while Concierge Medicine Today in a 2013-2014 Physician Salary Report noted that the average salary for a Membership Medicine Style Physician (including DPC doctors) ranged from $150,000 to $350,000.
“DPC allows doctors to provide better care, more often, at a fraction of the cost to patients, while increasing their income and offering greater satisfaction,” said Doug Nunamaker, M.D. “Why would anyone stay in a broken insurance-based model?”
Set realistic expectations in terms of how long it might take before you can generate an income again, keeping in mind that it always takes longer than you think it will. Do a personal financial review and create a budget. Without your income, you may need to do some belt-tightening.
How Much Can You Afford to Lose?
As evidenced by 27% of DPC doctors finance the startup costs of their DPC venture by leveraging Personal Assets (savings, house, 401 K, etc), it’s obvious that some doctors are willing to risk everything they’ve got to get into Direct Primary Care (DPC). Many doctors are so committed to their model, dream and vision that nothing else matters.
Reckless? Perhaps. There are certainly a lot of stories of doctors who were on the brink of bankruptcy and refused to give up their dream—but their persistence, determination, and passion paid off because they hung in there and were able to go the distance. Of course, there are even more stories in which the opposite is true.
However, let’s focus on the positive. Author and business consultant Marcus Buckingham wrote a book about this in Now, Discover Your Strengths. He writes … ‘Unfortunately, most of us have little sense of our talents and strengths, much less the ability to build our lives around them. Instead, guided by our parents, by our teachers, by our managers, and by psychology’s fascination with pathology, we become experts in our weaknesses and spend our lives trying to repair these flaws, while our strengths lie dormant and neglected.’
It’s not impossible to do this though, we’re just outlining what we hear each week from doctors in story form. Plenty of doctors don’t want to risk any of their personal assets. Oftentimes, doctors tell me that they don’t have any money to start their business, or they simply don’t want to invest any of their own money, so they want to know how to get a loan.
If what The DPC Journal interviews, polling data and surveys are accurate, and approximately 67% of DPC doctors have chosen the ‘DIY’ or second option — there’s no rule of thumb formula that suggests how much money you should invest in your new DPC practice. That answer is largely dependent on your ability to handle and be comfortable with risk.
“I couldn’t be happier,” said one Las Vegas Urgent Care Doctor in a DPC Journal interview. “I can provide better care and build a strong relationship with my patients. It definitely can be challenging since I make myself available 24/7, however if you can develop a good support structure of other like-minded MDs you can maintain a successful business with less stress than a traditional practice.”
Risk-taking goes with the territory when you talk about DPC business models with most physicians, say DPC doctors, their staff and industry experts. Your ability to answer seemingly difficult questions about insurance participation, fees, the Affordable Care Act (Obamacare) and the obstacles of uncertainty and potential failure and see the other side before others do is what makes a successful DPC physician accelerate into this industry with gusto. He or she sees that the ability for doctors to control their doubt and fear as the most important trait of all. By the way, did you know that most female DPC physicians have an easier time attracting and growing their patient-base than their male colleagues? That’s right, it’s primarily because of the ‘Mom Factor’ and that most females in a household are the Healthcare CEO of the family and will choose a doctor based on gender, age and whether or not that doctor smiled at them the first time they visited the practice. (Source: The DPC Journal, June 2014)
“The status quo in primary care is literally burning doctors out of the profession,” said Dr. Josh Umbehr of AtlasMD. “Three hours of transcribing, after seeing 25-40 patients every day, to earn one of the lowest salaries in medicine. DPC dismantles the biggest barrier to being a compassionate healer: time–and compensates them for the endeavor.”
On A Final Note
Becoming a DPC doctor has its advantages and disadvantages, its risks and rewards. You’ll face difficult questions, adversarial payor reaction(s), challenging situations caused by circumstances out of your control and more. But if you can overcome these challenges and keep your DPC business model profitable, you should know that it will require long hours and plenty of hard work.
“This new practice has been truly liberating,” says Dr. Alicia Cunningham of Vermont. “I am working harder than ever getting it of the ground but my time with patients is wonderful. And I get to be creative again in how I develop the practice, something that was lost from my previous office.”
So, in closing, ignoring everything else I’ve written up to this point, there is one thing I can assure you. From all of the doctors, consultant, attorney’s and accountants we have spoken with over the years, we seen that starting and growing a DPC practice is one of the most rewarding experiences you’ll ever encounter. It’s your baby and when it works as planned nothing can beat it. ~Michael Tetreault, Editor-In-Chief