NOTE: An Updated Version of this story is available here (Updated December 2018)
By Michael Tetreault, Editor
LAST UPDATED: JAN. 14, 2015 – We recently asked Concierge Medicine Today and Direct Primary Care Journal physicians, ‘How Did You Finance Your Concierge or DPC Medical Practice?’ The majority of physicians told us that they paid for the start-up costs associated with changing their business model to a private-pay model with Personal Assets (savings, house, 401 K, etc). Followed closely behind were: ‘pick up shifts at an UC or ER’; Credit Union loan; revenue earned or saved from the current practice; Crowdsourcing (Kickstarter, Indiegogo, etc) and the selling of commerial or personal property. In no responses were credit cards used to finance start-up costs.
Although concierge medical clinics and direct primary care doctors offices are popping up across the country, some hopeful owners are still struggling to get financing, and this has many “docpreneurs” wondering how to go about getting the cash they need to either start or maintain their medical business.
These days, the application to secure a business loan is extensive and rigorous. According to a recent Pepperdine University survey, nearly two-thirds of privately held, small businesses said they were denied by banks when they applied for a loan. So many hopeful physicians have to get creative when it comes to raising money.
One of the most common questions physicians ask when exploring this private-pay medical marketplace for the first-time is ‘how much does it cost to transition my insurance-based medical practice to this new direct-pay or retainer-based business model?’
Franchise and consulting fees can move from five-figures and easily into the six figures. According to Concierge Medicine Today, they’ve found the average cost is between $150,000 – $250,000 over a period of two to five years and in some rare cases, even longer. Some consultants have even quoted figures less than $60,000. However, depending on your practice, it’s demographics, your bedside manner, patient surveys (very important), complexity of internal operations in a practice, a financial feasibility analysis, and many, many other variables, a concierge medicine or direct primary care (DPC) practice may or may not be the right option for you.
“Perhaps most important from a doctors perspective,” says industry consultant whose specialty is helping doctors enter into DPC, Mike Permenter, “is that a consulting company should typically furnish all of the capital required to start or modify your medical practice and assumes all risk for success of failure. Thus, the high fees. My fees are much different than the industry standard.”
As with most of the companies operating in the concierge medicine marketplace, a doctor (i.e. franchisee) will pay an ongoing periodic royalty fee. CMT has found this to be as low as 15% of each patient’s individual membership fee and in most cases, between 29% to 33% for a period of approximately 3 to 5 years. In some rare cases, up to 25% of your per patient fee for eight years has been reported to CMT by doctors considering a career in concierge medicine or DPC. These fees usually include continued support and training in advertising: marketing; sales; operational guidance; technology; legal; regulatory; financial and human resources consulting; and other services.
“Business is tough,” says Dr. Chris Ewin of 121MD in Fort Worth, TX. “If you’re doing something just for the money, you’re never going to enjoy it. You will be the hardest boss you’ve ever had. So, find something you love and pursue it. Follow this advice and you’ll set yourself up for an enjoyable future in medicine.”
Many doctors startup a concierge medicine practice or pursue a satisfying career in direct-pay medicine for a multitude of reasons such as: spending more time with patients; a yearning to use their medical expertise more effectively; a more satisfying lifestyle; and more. Some doctors enter this field of medicine because their tired of hamster wheel healthcare and frustrated with treadmill medicine that has now become their day job.
Here are a few tips:
Note: We are not rendering legal, accounting or other professional advice in this subject matter. It is up to the individual or business owner to seek out the advice of competent professional.
If you are looking for a loan under $50,000, a microloan may be the way to go. The Small Business Administration’s Microloan Program provides small, short-term loans through specially designated intermediary lenders, which are usually nonprofit community-based organizations. While the maximum amount is $50,000, the typical loan is for $13,000. The requirements to obtain a microloan are more lenient as far as your credit score goes, plus, many big banks are generally hesitant to approve loans for under $50,000.
Before you fill out that bank loan application, do some homework. If you are planning to use a bank loan to get your concierge medicine or direct care practice started, run a credit check and talk to local bankers about the criteria needed to get a loan. Then, make sure you have a solid business plan that includes details such as a competitive analysis, the management process, a marketing analysis and financial projections. Also be aware that you will be expected to lay out more of your own cash up front. Banks used to settle for anywhere from 10 percent to 20 percent in cash or assets put up by those seeking a loan. Now they are looking for closer to a 50-50 split, the more money that comes out of your pocket the better.
Instead of heading to your rich uncle, look into the relatively new phenomenon of “crowd funding”. This type of loan is where you get small chunks of funding from everyone in a group such as Kickstarter. This route has a lot lower risk for those involved. The other upside is you will have a lot of people with interest in your prospective venture and they may be more likely to give you referrals and opportunities down the road.
What Not to Do
The “don’ts” can be just as important as the “dos” when it comes to financing your concierge medicine practice or direct primary care clinic. Here are three pieces of advice on the subject. First, don’t invest all your time in trying to raise money. There have been so many good business concepts that go south because the person has committed everything to raising money and puts the concept on hold. Second, ideas are great but execution is everything. Don’t pursue financing if you don’t have a working concept. Lastly, don’t get hung up on the interest rate. If someone is offering you $50,000 at 12 percent and someone else is offering you $30,000 at 8 percent, the loan with the higher interest rate may be the way to go if that is the capital you need and this may prevent you from spending more than you need.