November 2, 2022
Dr. Carlene Macmillan, M.D.
You’re ready for the freedom of your own private psychiatry practice, and being your own boss can be a strong financial move in the long term. But what are the upfront costs?
And how many patients do you need to see a month to break even, let alone start to meet your financial goals?
To make an editable copy, go to “File” —> “Make a Copy.” Use the budget template to help set a budget for your monthly costs, determine how many hours you want to see patients a month, and your hourly rate for different patient groups.
A word to the wise: although the initial costs may be intimidating, we almost never see psychiatrists regret investing in tools and processes that save them time in the long run.
As the name suggests, monthly costs are repeatable costs like software, office rent (if in-person), and legal coverage. Let’s cover these first because they impact your bottom line the most.
Electronic Health Record (EHR)
You’ll spend a lot of time with your electronic health record, so it’s worth investing in one that relieves more stress than it causes. A quality EHR for private practice psychiatrists is designed for psychiatry and won’t nickel and dime you based on how often you use certain features.
Your EHR should include most—if not all of the following features, so you won’t have to buy them through an outside vendor:
Financial / Accounting Software
In addition to an EHR, you’ll need a system to track your business expenses and income. This will be critical for tax season, and to understand the overall financial health of your business. There are many popular options, including Quickbooks, which starts at ~$30/month.
An absolute must for every practice. In some states, a minimum level of coverage is required. Check with your national and state professional organizations for their preferred carriers and associated discounts. Like EHRs, a malpractice carrier that specializes in working with psychiatrists is often the best choice to understand your needs. Many factors will influence your malpractice monthly premium costs including:
For broad estimation, malpractice insurance typically costs between $350-$1,250 / month for a full-time psychiatrist. Premiums are typically paid annually.
Online Marketing, Website, and Practice Listing
In 2022, you need to show up online. Most patients will Google you to see if you’re credible before signing up for a session. Or, they find you through Google in the first place. We recommend creating a practice website and/or listing yourself on mental health directories.
Our take: a website is critical for marketing, and to share logistical information about your practice’s services, communication channels, and policies.
However, creating a website doesn’t need to break the bank. There are many affordable and user-friendly options, such as Wix, Squarespace, Weebly, and Wordpress, that don’t require any coding knowledge or major design skills; templates will take you 90% to the finish line. There are also web design services that specialize in healthcare websites.
Keep in mind there are important legal disclaimers, concerns around the need for HIPAA-compliant forms and ADA accessibility issues when building a website that advertises medical services. Be sure to also check with your state board regarding specific regulations around including things like patient testimonials and representations around being board-eligible vs. board-certified.
Additionally, many solo practitioners choose to list themselves on online directories with strong search engine optimization that lend credibility and generate patient leads. Cost models differ. For example, Psychology Today charges a flat monthly fee ($29.95 as of the publishing date) while ZocDoc charges a one-time fee for a patient’s first booking.
Business Checking Account and Credit Card
You may be able to get a business checking account and credit card with no fees or minimums. However, if you choose products with fees, you’ll want to factor those into your budget.
Modern online business banking platforms like Novo Bank and Mercury Bank are convenient. They integrate with popular software and are easy to set up. The downside is they don't allow cash deposits or issue traditional paper checks—so consider if that will be important for you or not.
Even if you are the only one in your practice and you do not have any employees, you should talk with a healthcare attorney or accountant about practice structure. There are advantages to setting up a Professional Corporation or PLLC rather than a sole proprietorship.
With these structures, you become an employee of your company and will need to run payroll for yourself in addition to taking owner’s disbursements. Some accountants can run this payroll for you or you can use inexpensive software like Gusto to easily do it yourself.
Some psychiatrists are happy to create a new free Gmail account for their business, but this would not be HIPAA-compliant. Others prefer the more professional feel of a new corporate email address with a Business Associate Agreement in place for HIPAA compliance.
If that’s you, business email accounts typically cost $1-$6 per month depending on your storage, collaboration, and productivity tool needs. Google offers to sign a BAA and will give you access to other Google Workspace services like Docs and Sheets.
If you plan to have an in-person location, you’ll want to plan for rent, utilities, and internet service. You will need to get General Liability insurance or a Business Owner Policy insurance as well. Optionally, you may want to have a phone/fax line and a security system.
While this sounds like a lot, there are a lot of creative ways to be frugal with your rent. For example, can you rent space from an existing company on morning, nights, weekends, or weekdays when they use their space less often? Can you share space with other professional staff and divide up office time and costs? Keep in mind if you decide to sublease your space out to others, make sure they also have the proper liability insurance in place and name your business on it.
These are one-time or as-needed costs to set a solid foundation for your private practice.
Attorney Consultation and Business Structure Set up
You may want to meet with a healthcare attorney to understand which business incorporation makes the most sense for you. Some healthcare accountants can also provide this type of guidance. A healthcare attorney can also consult around any practice policy and consent documentation, as well as advise on employment contracts.
You may be able to book a free 15-minute consultation as a potential new client and get your questions answered. Some state professional societies also offer low-cost or free consultation services with attorneys.
While setting up a sole proprietorship and getting a Tax ID for it is free, there are modest costs associated with setting up a Professional Corporation or PLLC and filing for a “Doing Business As” (D/B/A) name if applicable.
Many states have very strict rules on the official names of medical practices that have to be very concrete around the services and professionals involved. Therefore, a D/B/A to use the name you want may be necessary.
To initially get the word out about your practice, you may want to plan for upfront marketing expenses. This could include things like hosting an open house, attending networking events and conferences with new business cards or even sending out postcards to local potential referral services. This article has great advice for how to stand out in a crowded marketplace.
Business Credit Card
Depending on how much you plan to spend on your business, it may be worth getting a business credit card with an annual fee. However, there are also business credit cards with no annual fees.
Some business credit cards with annual fees, like an Amex Platinum Business card, have very advantageous perks and rewards relevant to business owners. In particular, if you anticipate traveling to academic conferences a lot, the travel perks like fees towards Global Entry and Clear can completely offset the annual fee.
Now that you have a sense of what your costs are, you can make an informed decision on how many patients you need to see per month and what rate you need to charge to break-even and meet your financial goals.
Number of Patients
When thinking about how much time you want to spend on your private practice each month, consider that a study in the International Journal of Health Services estimates that psychiatrists spend the highest proportion of their time on administrative work of all specialties, at around 20.3% of total working time.¹ A few questions to ask yourself when determining how many patients you want to see each month:
Setting Your Rate
We know figuring out your rate can be a very difficult process. You have a lot of goals to balance, including financial viability, patient volume, health equity, and access.
There are two ways to think about this:
To determine your full fee, research what comparable psychiatrists are charging in your area. Ask current and former colleagues, check their practice websites as more and more are listing fees to be more transparent around pricing, and ask about costs on online forums or listservs.
Additionally, understand what out-of-network benefits are for common insurance plans in your area, such as plans from major local employers, universities, and your state marketplace. Unfortunately, many state marketplaces only have plans without out-of-network benefits.
You’ll want to set a fee for an initial evaluation, as well as sessions of different lengths for medication management or psychotherapy sessions, depending on what you offer. Also develop a policy around fees for additional time outside the session, such as lengthy document prep or responding to extensive emails. Make sure these are clearly laid out in your practice policies.
Once you determine your full rates, you can choose to offer financial hardship waivers for patients who are a good fit but can’t afford your full rate. When offering a financial hardship waiver, you’ll likely want to understand what out-of-network benefits that patient has, if any, to understand the true cost to the patient. Many people designate a certain number of slots for financial hardship patients rather than leave it open-ended.
Lastly, if you choose to take insurance, you’ll need to directly negotiate your rate with insurance companies. That is outside the scope of this article but is an art in and of itself for a separate post.
Lastly, once you determine your expected revenue, remember that many patients prefer to pay by credit card, and any payment processor you use will charge you a percentage of the transaction for processing cards.
Patients who have debit cards associated with a Health Savings Account (HSA) may prefer to pay with a debit card instead. Taking credit cards is also convenient for you because you can store the card information on file and bill after sessions without needing to track down a payment every time. There are many considerations when choosing a credit card processor and if this service is integrated with your EHR that may be the most prudent route.
Estimating Your Profit
Profit = revenue - expenses. Once you’ve subtracted all your expected costs from your revenue, you’re one step away from forming a rough idea of your financial goals. But don’t forget taxes!
Depending on the business structure you set up, your profit may be taxed at a single level, or may be taxed both at the corporate level and then again on an individual level. Taxes vary greatly by business type, location, and qualifying deductions. We recommend consulting with an accountant who is well-versed in private practices!
You likely didn’t learn much about the business side of private practice across all your years of schooling—so you’re not alone if it feels daunting.
Osmind’s Solo Psychiatry Cash-Pay Practice Budget Template (click to make a copy) offers a framework for planning your budget in three ways: upfront costs, monthly costs, and monthly revenue.*
Once you fill out the template, you’ll feel peace of mind knowing the financial lifeblood of your practice is accounted for. Now you're ready for pt.3: Setting your legal and financial foundations.
¹Administrative work consumes one-sixth of U.S. physicians' working hours and lowers their career satisfaction," Steffie Woolhandler, M.D., M.P.H., and David U. Himmelstein, M.D. International Journal of Health Services, Vol. 44, No. 4.
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