Making Business Decisions When Establishing a New Practice

When making a decision to establish a new practice, there are some key questions one needs to ask to make the best business decisions.​ 

Health Insurance Plans/Payer Mix Questions You Need to Ask and Answer  

​What payer mix might you expect in the community? If the area has a high percentage of children on Medicaid, are the state’s rates reasonable and profitable? Similarly, are the State Children’s Health Insurance Program (SCHIP) payments acceptable? What are the major private insurers, and how well do they pay? Ask other pediatricians if they have had particular difficulties dealing with certain programs or insurers.

The AAP Section on Administration and Practice Management​ (SOAPM) can be superb source for information and feedback. If considering a cash-only or concierge practice, are there enough families to support this venture? Are there many military families in the community, and will there be any issues contracting with Tricare? (Tricare will usually not allow private pediatricians to be primary care physicians if there is a military base nearby.) Contact the state medical society for information on payer mix and the business climate within the area.  

Working Near State Borders 

Communities near borders with other states deserve special consideration. It is important to research Medicaid, SCHIP, and private insurers for the nearby states; in addition, some state Medicaid programs may not cross state lines, making it challenging to participate. Will privileges in another state’s hospital be desired or necessary? Will another state license and state controlled substance privileges be needed?  

Financing Your Practice 

Some new practices are fortunate enough to get financial support from a local hospital while still maintaining their independence.  Financial support must be compliant with Stark and anti-kickback laws, but it often includes low-interest loans or startup capital in exchange for a commitment to practice in the area for a set amount of time. Sometimes these loans can be forgiven over time. If contracting with a local hospital for financial assistance, how much control will you have in the decision of where to locate the office? How much input will you have on practice style or hospital admissions? What kind of reputation does the hospital have in the community—will patients avoid the practice if associated with that hospital?  

Choosing a Hospital Partner 

While it may have been the norm many years ago, many general pediatricians no longer maintain admitting hospital privileges. If you have hospital privileges, you may be required to take unassigned patient calls, cover inpatients, and/or attend deliveries or stat C-sections. Consider the volume of referrals this will generate for your practice vs. on-call headaches. An hour of hospital work does not necessarily generate the same revenue as an hour of office work. Most insurance companies require you to have hospital privileges at one hospital at minimum, or a formal written admission agreement with another pediatrician to cover those services.