Practice Start Ups

Steven E. Ratliff, Jr.
Senior Project Manager/Senior Consultant
Healthcare Strategy Group

When starting a new physician practice there are several steps that must be taken to ensure proper and timely set up. This article will focus on the major areas and offer some milestones for each area. Please note, this article is being written from the perspective of a hospital setting up a new employed group.

Careful, thorough planning is the key component to the start up and success of any new practice.  Our experience is that practice startups require six to eight months to complete. This time frame includes everything from selecting the name and type of entity for the new practice to submitting the first insurance claim. Further experience shows, depending upon the market, that new practices generally break even after the second year and become profitable between the third and fourth year of operation. One of the major mistakes hospitals, health systems, and practitioners consistently make when setting up a new practice is establishing an unrealistic timeline.

Setting up the New Corporation.

(Timeframe: 180-210 days prior to seeing the first patient.) Before any other steps are completed, the new corporation must be organized. There are several steps in this process and we recommend the hospital work with an attorney and consultant throughout the entire process. Key milestones in the process include:

  • Selection of the name
  • Deciding if the new practice will be a separate corporation from the hospital with its own tax identification number
  • Establishing governance of the practice, such as determining who will serve on the board of directors

Provider Compensation Contracts, Licenses, and Malpractice Insurance

(Timeframe: 180 days prior to seeing the first patient.) Now that you have decided to start a medical practice, and have decided on whom to employ, key milestones include:

  • Drafting employment contracts/agreements with providers
  • HSG always recommends base salary + productivity models for compensation.
  • Initial contract length of at least 3 years
  • New providers will need to obtain, and existing providers will need to furnish:
  • State license
  • National Provider Identifier (NPI)
  • Proof of malpractice coverage
  • Federal narcotics license (DEA Certificate)
  • State narcotics license (varies from state to state)

Practice Management Software and Billing

(Timeframe: 180 days prior to seeing the first patient.) One of the most important decisions you will make after the decision to start a group is which practice management software you will utilize to manage operations and data. If the decision is made to outsource billing, you will need work with the service prior to signing the contract to ensure that it will be able to provide you with the reports you need.

A plethora of practice management system options are available, each varying in price and functionality. The success or failure of the practice depends not only on the productivity of the providers you employ, but on the practice’s ability to mine data and submit claims for payment. While you probably do not need the most expensive product available, do not settle for a “cheap” alternative. Lower end systems might not provide the reporting capabilities required to manage the practice. Selection of the system will need to be made 180 to 210 days prior to the date you expect to see the first patient due to training and implementation timelines. Some vendors may require very little time for installation and training, but most will need at least 4 months from the time the agreement is signed to implementation of their program.

This decision to utilize practice management software vs. outsourced billing must be made prior to completion and submission of insurance contracts, including Medicare and Medicaid. Many carriers require information on the application pertinent to the software, such as the clearinghouse you will use for electronic claims.

Insurance Contracting

(Timeframe: 180 days prior to seeing the first patient.) This is another area where mistakes frequently occur. It is important that the hospital provide a list of its current contracts so that the consultant working on the project can ensure that the new group participates with the same carriers as the hospital. Insurance carriers usually require the following items be submitted with application:

  • Copies of Most Corporate Documents
  • Copies of Provider’s
  • State License
  • NPI
  • Malpractice Face sheet
  • DEA certificate
  • Medical School diploma
  • Curriculum Vitae (CV)
  • Board Certification Certificate(s)

Accounting, Human Resources (HR), and Corporate Compliance

(Timeframe: 180 days prior to seeing the first patient.) If you are setting up a private practice, your Practice Administrator will manage these functions. If you are organizing a group of providers that will be employed by the hospital you will want to consider buying these services from their respective departments in the hospital. While HSG has worked with a few hospital-employed groups with their own accounting and HR departments, most buy these services from the hospital or health system by which they are employed.

Hiring a Practice Administrator

(180-210 days prior to seeing the first patient you should begin recruiting a Practice Administrator.) It is important that you recruit an experienced manager to oversee the day-to-day operations of the practice.

Many hospital leaders make the incorrect assumption that they can manage the medical group in the same manner by which they manage the hospital, without recognizing the differences between the two organizations. The requirements of the position will vary depending upon the size of the group and complement of physicians. Look for someone with a proven track record, preferably with experience managing another hospital employed group or a large independent group.

Staff Selection and Training

(Timeframe: 30-45 days prior to seeing the first patient, your Practice Administrator should begin recruiting staff required to run the day-to-day operations in the practice.) The staffing complement and number will vary depending upon the specialty, age of the practice, and number of providers. A new practice will not require as many staff as one that is mature. Initiating the recruitment process at this time will enable the staff you wish to hire the opportunity to give proper notice to current employers. Plan to have most staff begin approximately 15 days prior to seeing the first patient. This will enable enough time for orientation and software training prior to practice opening.

This article has presented some of the key milestones in setting up a medical practice and is not intended to be an exhaustive list. The below figure is a snapshot from the New Entity Set up tab of our detailed checklist.



Set Up New Corporation
Select name for New Co.


Determine type of entity (C-Corp, S-Corp,LLC)


Prepare and File Articles of Incorporation/Organization


Obtain Federal ID Number- Form SS-4


Obtain State Employers’ Witholding Tax number


Obtain Consumer’s Use Tax Number


Register for state unemployment


Prepare legal documents


Review legal documents


Signed Agreement partnership/corporation


Select board of directors and officers


Issue stock certificate


Obtain National Provider Identifier for new co.


Hold BOD meeting to elect/approve officers, determine authorized signers for new bank account, approve stock issuance


For more information on setting up a new medical practice or to obtain our detailed checklist, contact Steve Ratliff at 502.814.1187 or by e-mail at

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