HealthFebruary 07, 2020

What is the cost of starting a medical practice?

By: Whitney J. Palmer

Starting any small business comes with its share of risks, but opening a private practice can bring personal and professional rewards. And as Business News Daily points out, more small practices means benefits for the community, with greater competition and more widespread access to care for patients. But the cost of starting a medical practice and controlling overhead are critical concerns, and planning appropriately is vital to sustainability and future success.

Doctorly estimates that the cost of starting a medical practice ranges from $70,000 to more than $100,000, while Physician Practice Specialists (PPS) projects that the average monthly cost is $6,000. For daily, monthly and yearly functioning, it's important to know how to categorize expenses.

Operating expenses

Operating expenses are those integral to day-to-day operations. According to PPS, you'll need to consider several expenditures.


Initially, hire an employee who can handle multiple roles — someone who can work the front desk and assist with medical responsibilities. As profits increase, hire any additional staff conservatively, and use a payroll service to handle all taxes, benefits and regulatory requirements. On average, you should plan for $3,000 in monthly staffing expenses.


The electronic health record (EHR) and revenue cycle management (RCM) systems are your two most critical vendor expenses. Watch an EHR demonstration before purchasing, and try to use the same vendor for both your EHR and RCM. Anticipate paying between 6% and 8% of your monthly revenue for an integrated EHR. Your other vendor expenses will include internet, phone and credit card and payroll processing. The average initial setup is approximately $5,000 with $700 monthly for services from your various vendors.

Optional operating expenses

Not all operating expenses are mandatory. Business-related travel expenses, membership dues, marketing and social media coordination can benefit you, but forgo them until you have strong financial footing.

Overhead expenses of a medical practice

Two of the other major ongoing expenses to run your practice include rent and insurance.

Office space

Rent a space only big enough for what you need but with room for expansion. PPS says approximately 2,000 square feet, at roughly $2,000 to $2,500 monthly, should suffice. It's best to negotiate a multiyear lease when possible, and be sure to consider other costs, such as common area maintenance, taxes and insurance when negotiating rent.


Both general liability and medical malpractice insurance are required. General liability is less expensive, roughly $1,000 annually, and it covers you for accidents. For example, if a patient slips and breaks a hip at your office, this insurance will cover the cost. Medical malpractice insurance is much more expensive, averaging between $5,000 and $15,000 yearly, and the cost varies by specialty, location and your claims history. Obtain at least a few quotes before purchasing, and negotiate with the carrier to ensure you receive all possible discounts. Establish a quarterly payment schedule to pay for the policy in smaller chunks.

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Capital expenses of a medical practice

No matter your specialty, opening your own practice means you'll need to decide what equipment to acquire and how to do so. Establish a budget before buying, and try to keep each purchase under $15,000, as recommended by PPS. You don't necessarily need the most up-to-date equipment — gently used or leased equipment may meet your needs and save money. Leasing is particularly attractive if you're in a specialty where technology changes rapidly, such as dermatology.

Funding options

There are several options available for covering the cost of starting a medical practice, according to small business financial resource Fundera. Examine your specific needs to determine the appropriate loan type for you.

SBA 7(a) Loans

Awarded by the U.S. Small Business Administration, these are the most popular loans for doctors opening a private practice. They offer flexible terms with low interest rates and longer repayment timelines. However, they also require a high credit score (at least 680) and can take several weeks to process, potentially slowing your progress.

Traditional bank loans

Many mainstream banks, such as Wells Fargo and Bank of America, have medical divisions devoted to analyzing medical loan applications. Even though the application process can be long, these loans are relatively inexpensive. Traditional banks are more willing to overlook less-than-stellar credit history and existing student debt. However, these loans are highly competitive and can be difficult to obtain.

Term loans

Available through alternative lenders, these loans are tailored to doctors. They're a good option when traditional bank loans aren't feasible, but they're pricier. However, they have less stringent qualifications and offer a faster application process.

Short-term loans

Although these loans are rarely specifically for medical providers, they can be a good option if you know you'll make a lot of revenue. The application process is quick, and the criteria for approval are looser. They are more expensive with higher interest rates and shorter repayment terms.

Business line of credit

This financing option works like a business credit card. Your lender approves you for a certain amount, but you only pay interest on what you use. It's considered good for doctors because you can access funds quickly.

Equipment loans

These loans are limited strictly to equipment purchases, such as MRI machines, and you'll be required to submit quotes to your lender before you're approved. If you use the equipment as collateral, you don't have to submit a down payment or leverage your personal property. Equipment loans traditionally have higher interest rates.

There's much to consider about the cost of starting a medical practice, but you don't have to navigate the waters alone. If you're striking out solo, the American Academy of Family Physicians offers an online tool that can guide you through the process.

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Whitney J. Palmer
Lippincott® Medicine
Lippincott is a leading international medical publisher of professional health information for practitioners, faculty, residents, students, and healthcare institutions with a full suite of essential medical products, from books and journals to digital solutions.
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