How to Start a Medical Practice: A Physician’s Step-by-Step Guide

Most physicians who want to open their own practice aren’t held back by the medicine. It’s everything else. Leases, credentialing, payroll, a billing system you’ve never touched.

The list is long, too. Our private practice startup team works through it with every physician, and most of it comes up when you’re figuring out how to start a medical practice.

But it isn’t an impossible list. Mostly it’s a sequencing problem.

Do things in the wrong order and you’ll stall for weeks waiting on a form that needs a tax ID you don’t have yet. Do them in the right order and it turns into a long but manageable checklist.

This guide walks through how to start a medical practice in the order we use with physicians: a set of preliminary decisions first, then three rounds of tasks that build on each other.

Is Now a Good Time to Open Your Own Practice?

Honestly, fewer physicians are doing it. According to the AMA’s 2024 Physician Practice Benchmark Survey, 42.2% of physicians worked in a practice wholly owned by physicians, 18 percentage points lower than in 2012. Only 35.4% had an ownership stake in their practice.

That trend is real. Payment pressure and administrative burden are pushing a lot of physicians toward employment.

And yet the physicians who do go independent usually give the same reasons.

Autonomy. You choose the equipment, the workflow, the staff, and the kind of care you provide. No request forms. No waiting on administration. Some physicians use that freedom to serve an underserved community. Others build a concierge or direct primary care model.

Lifestyle. You decide how many patients to see, how many hours to work, and when to take vacation. That doesn’t mean fewer hours in year one. It usually means more. But the control is yours.

Income. An owner keeps the margin that an employer would otherwise keep. It takes time to get there, and there’s no guarantee, but the ceiling is higher.

Not ready to go completely solo? You can also buy into an existing practice or purchase one outright. If you’re joining partners, get a partnership agreement drafted by an attorney before anything else is set up.

How Much Does It Cost to Start a Medical Practice?

The honest answer is a range, and it’s wide. Industry estimates put most practices somewhere between about $70,000 and $500,000, depending on specialty, practice model, market, and facility. Add a surgery center and it can run into the millions.

Where you land in that range depends mostly on what your practice needs to do on day one:

Where you land also depends on how much you buy up front. You can open bare bones and put off new equipment and Class A office space until the practice can afford them. We compare it to buying a house: you don’t start with your dream home.

The goal is a practice that looks and runs professionally, not one that’s top of the line on day one.

What catches most physicians off guard isn’t the equipment. It’s working capital.

Insurance reimbursements often take 60 to 90 days to arrive, and your first months of claims will be slower than you’d like while billing gets sorted out.

Here’s what that looks like in practice. Say your practice expects to collect $500,000 in its first full year. With a 60 to 90 day lag, roughly $80,000 to $125,000 of revenue you’ve already earned will be sitting in the pipeline before the first checks arrive.

Your reserves have to cover payroll, rent, and your own living expenses until that catches up. That’s why we suggest having three to six months of operating expenses available before you open.

We cover funding options in more depth in our guides to medical practice financing and medical practice loans.

How Long Does It Take to Start a Medical Practice?

Plan on six months to a year from the time you commit to the day you see your first patient.

Credentialing is almost always the reason it takes that long. Getting enrolled with a single insurer commonly takes four to six months, sometimes longer. You have very little control over how fast insurers process your applications. You do have control over when you submit them.

How long depends on the payer and the state. Some insurers approve new physicians in about two months. Others take much longer, especially when a payer’s network is closed to new providers in your area.

In our experience, the difference comes down to knowing when to reapply and how to reach the people who will give your application a fair look. Not all case managers are equal.

Our rule of thumb: plan on four to six months, and start as early as you can.

The planning before that point varies a lot. Some physicians spend a year thinking about it. Others decide in a month because an opportunity forced the decision.

Once your doors open, most practices start seeing patients within a few weeks, faster if you have an established patient base nearby. It can take closer to a month in a brand-new area, or if a non-compete forced you farther from your current patients.

Step 1: Preliminary Decisions

Before you resign or tour a single office, a few things need answers.

Get your state license moving

If you’re opening in a state where you aren’t licensed yet, start this first. Approval times vary a lot by state, and nearly everything else on this list, from your DEA registration to credentialing, depends on it.

Check your current contract first

This is the one physicians skip, and it can cost them the whole plan.

Most employment agreements include a non-compete. If yours restricts you from practicing within 20 miles for two years, the office space you were eyeing across town may be off the table. Your contract may also determine who pays for malpractice tail coverage when you leave, which can be a five-figure surprise.

A contract review before you give notice is cheap compared to either of those.

Talk to physicians who’ve done it

Reading guides helps. This one included. But nothing replaces 30 minutes with a physician in your specialty who opened a practice in the last five years.

Most are glad to talk. Ask what they’d do differently, who they used for billing and payroll, and how long credentialing really took.

Choose your location

Where you want to live matters, obviously. But you also need patients.

Look at the physician-to-population ratio for your specialty in the area. Check whether local hospitals are recruiting in your field, because if they are, there’s unmet demand. Average wait times for appointments are another signal. Long waits mean patients need more options.

Decide how you’ll get paid

This choice shapes almost everything that follows, so make it early.

A traditional insurance-based practice means credentialing with payers, a billing system, and staff who understand claims. A cash-pay model like concierge medicine or direct primary care skips most of that, usually with lower startup costs and a smaller patient panel. And some practices join value-based arrangements, such as an accountable care organization, that pay for outcomes as well as visits.

Plenty of practices mix these. Just know which one you’re building around before you hire, pick software, or sign payer contracts.

Write a business plan

Lenders will ask for one. More importantly, it forces you to test your assumptions before you spend money.

Cover your market (who your patients are, who else serves them, and where referrals will come from), your startup budget, and three to five years of projected revenue, expenses, and debt payments. Add your staffing plan and how you’ll attract patients. It doesn’t need to be long. It needs to be honest.

Need help with the numbers? Our startup team builds the business plan and financial projections with you, then helps you take them to lenders. See how our startup support works

Figure out the money

Personal savings, a practice loan, an SBA loan, a partner’s capital. Most physicians use some combination.

There’s also one option most don’t know about.

The financing option most physicians overlook

Hospitals that need your specialty in their service area are sometimes willing to support a new practice directly. That can mean a guaranteed income for the first year or two, or help with startup costs like equipment.

These arrangements are regulated. Federal law allows hospitals to offer them under a specific physician recruitment exception, and it usually requires that you relocate your practice into the hospital’s service area. There will be a written agreement, and often the support is structured as a loan that’s forgiven if you stay in the area for a set period.

That last part matters. Leave early and you may owe money back. Have a healthcare attorney review the terms before you sign.

In practice, these offers usually come as a three-part package:

• An income guarantee, set at roughly what the hospital would budget to employ you outright, so the offer stays competitive
• A benefits allowance to cover what an employed physician’s benefits package would normally include
• An overhead or startup budget for staff, office space, technology, and other administrative costs

Malpractice coverage is sometimes provided by the hospital and sometimes folded into the budget allowance, so confirm which one you’re being offered.

Step 2: First-Line Tasks

These tasks have to happen before you can credential with insurers, so they come first. Several depend on each other.

Form your business entity. Most physicians form a professional corporation or a professional LLC, depending on what their state allows. An attorney can usually handle this in a few weeks. We explain the tradeoffs in when physicians should incorporate.

Entity choice and tax structure go hand in hand. Our team works alongside your attorney and CPA so the structure you set up now still makes sense once the practice is profitable.

Reserve your business name. Check that the name is available with your state, and run a trademark search before you fall in love with it. Grab the matching domain name while you’re at it.

Get your EIN. Once the entity exists, apply for an Employer Identification Number with the IRS. You’ll need it for the bank account, payroll, and insurer applications.

Secure your office space. Many applications ask for a practice address, so this needs to happen early. If your lease isn’t final yet, some paperwork can start with a temporary business address, but insurers will need your actual practice location before enrollment is complete. Check with each payer. A commercial real estate agent who works with medical tenants is worth it. Before you sign, confirm the space is zoned for medical use and can meet ADA and building code requirements. And ask who pays for the build-out. It’s often negotiable.

Before you sign, have someone who’s read a lot of medical leases look at yours. We help physicians compare sites, confirm zoning, and negotiate build-out terms.

Get an organizational NPI. You already have an individual NPI. Your practice needs its own (a Type 2 NPI) for billing. You apply through CMS’s NPPES system.

Open a business bank account. Insurer payments go here, never to your personal account.

Buy malpractice insurance. Most insurers won’t credential you without proof of coverage. See our malpractice insurance options and what it typically costs.

Register to prescribe controlled substances. Many states require a state controlled substance registration first, then a DEA registration tied to your new practice address.

Start credentialing. Update your CAQH profile, enroll with Medicare, and apply to each commercial insurer you want to accept. You choose which insurers to work with. Each one is a separate application and a separate wait. And don’t treat the contracts as paperwork. Reimbursement rates are often negotiable, especially for specialties the payer needs in your area. If you’ll admit or round, hospital credentialing runs on its own track.

Credentialing is where most startups lose time. Our team manages the applications, follows up with each payer, and pushes for better reimbursement rates, so enrollment keeps moving while you’re still seeing patients. Talk to our startup team

Step 3: Second-Line Tasks

These don’t hold up credentialing, but you’ll need all of them before opening day. Most can run in parallel while you wait on insurers.

Business insurance. Separate from malpractice. You’ll want general liability, property coverage, workers’ compensation for employees, and increasingly cyber liability. Some carriers bundle these in a business owner’s policy.

Protect your own income. Once you own the practice, your income depends entirely on you being able to work. If you don’t already have your own disability insurance, now is the time. Business overhead expense coverage, which pays the practice’s bills if you’re disabled, is worth a look too.

Hire an office manager. This person will handle staffing, HR issues, and often billing and coding oversight. Hire for real medical practice experience, not just general office work. Here’s more on what a medical practice manager does.

Set pay and benefits before interviewing. Decide salaries, health insurance, PTO, and retirement plans before the first interview. Have employment contracts ready for new hires to sign.

Screen and register every hire. Beyond references and license verification, check each candidate against the Office of Inspector General’s exclusion list. Billing Medicare for services from an excluded person can lead to penalties. Then register new employees with your state and set up your state unemployment tax account, along with I-9 and W-4 paperwork.

Hiring your first team is a project of its own. We help set pay ranges, draft job descriptions and employment contracts, and build the onboarding and compliance training your staff will need.

Choose your systems. EHR, practice management, billing, clearinghouse, and payroll. These choices are hard to undo later, so dChoose your systems. EHR, practice management, billing, clearinghouse, and payroll. These choices are hard to undo later, so demo a few. Our guide to medical practice software covers what to look for.

Line up outside help. Most independent physicians outsource accounting, legal, bookkeeping or payroll, and tax planning. Your personal financial planning changes a lot once you own a business, too.

Decide how you’ll pay yourself. Salary, distributions, or a mix. The right answer depends on your entity type and your tax picture, and it affects both your personal cash flow and your tax bill. Settle it with your accountant before your first payroll.

Arrange after-hours coverage. An answering service takes the calls, but you also need a physician covering nights, weekends, and your vacations. Many independent physicians set up a call-sharing arrangement with colleagues nearby, which doubles as the start of a referral network.

Order equipment and furniture. Exam tables, diagnostic equipment, computers, printers, waiting room furniture. Lead times on some equipment can run weeks.

Step 4: Third-Line Tasks

Now the details. None of these are complicated on their own, but missing one on opening week is a headache.

• Set your fee schedule
• Set up claim submission on the CMS-1500 form (or electronically through your clearinghouse)
• Get current ICD-10 and CPT coding resources
• Set up credit card processing
• Stock standard medical supplies
• Hire an answering service for after-hours calls
• Contract with a medical waste disposal service
• Contract with a document shredding service
• Create patient intake forms and HIPAA notices
• Complete a HIPAA security risk assessment
• Set up your OSHA bloodborne pathogens plan and training
• Get a CLIA certificate if you’ll do any in-house lab testing
• Display your state medical license and credentials
• Build your website and claim your Google Business Profile

That last one deserves more than a line. Patients need to find you before opening day. Here’s our guide to marketing a medical practice.

Then announce your opening. Let local hospitals, specialists, primary care practices, and pharmacies know you’re open and what you offer. Those relationships become your referral base. An open house for the community and nearby practices is an easy way to start.

Mistakes We See Most Often

When physicians learn how to start a medical practice the hard way, it’s usually one of these.

Starting credentialing late. Physicians wait until the office is ready, then spend months with an empty schedule.

Choosing the wrong entity. The structure you pick in month one determines how you’re taxed for years. Get it wrong and you can pay more than you need to from the start.

Starting with a partner without real alignment. If you haven’t agreed on values, vision, and how much time and effort each of you will put in, the conflict shows up early and can stall the practice before it gets off the ground.

Buying on price alone. Overpaying is a problem, but so is the cheap option that doesn’t hold up. A low-cost EHR that can’t handle your needs can mean breaking the contract, paying penalties, and migrating everything to a new system. Malpractice deserves the same care: compare both admitted and non-admitted markets before you choose.

Hiring too much, too soon. Full-time staff for part-time work drains cash fast. Start lean. Early hires also need to be adaptable, because in a small practice everyone ends up wearing more than one hat.

Accepting terms at face value. In business, most things are negotiable. Physicians usually aren’t trained to negotiate, so they tend to accept terms as offered when there’s room to structure the deal more than one way.

Revenue cycle management is a good example. You might pay a flat monthly fee or a percentage of collections. Structured the right way, one option can cost six figures a year less than the other.

Signing the lease too fast. Physicians fall in love with a space and sign before checking the non-compete, the build-out terms, or whether the zoning allows medical use.

Frequently Asked Questions

Talk to Our Practice Startup Team

Our startup team handles every part of the process, from entity formation through your first years in practice.

On a short call, we’ll talk through your specialty and market, estimate your timeline and startup costs, and walk you through the full scope of what we handle.

Schedule a Practice Startup Call