Setting Up a Concierge Practice, Step-by-Step: Start-Up Costs
I looked at startup costs by analyzing old engagement agreements and client accounts from the early 2000s when I was competing with a few big ticket consultants. Those consultants often came in with a lowball front end quote but required a "piece of the action" for as much as seven years. They came in with a prepared document set of the membership subscription agreement, marketing pieces, and also required the client to purchase a license for the bespoke concierge medical records and patient accounting systems that were "designed to meet the unique needs of the concierge physician". (Hogwash!)
In the end, the physician paid so much more and was often tethered by contract for as long as seven years before the consultant released their grip financially on practice revenues. The powerful threat was that if they broke the contract, the physician lost the special magic software, and could no longer access their patient accounts or medical records. I can only assume there was some first mover advantage to that consulting business strategy, but many have come and gone since.
Now that I look back, perhaps there was some merit to the model, just not the method. The startup costs ranged from $70,000 to $100,000 (and often several hundred thousands) back then in 2001. Using WestEgg's (westegg.com) inflation calculator, what cost a new concierge physician $70,000 in 2001 would cost $86,349.62 in 2010, and the number will continue to rise in 2012. But.... not so fast! What the money was used for back about 11 years ago is a very different landscape in 2012. For example:
There was no content management system to leverage website design costs. One paid upwards of $30,000 for design only, and then much more than today's costs for hosting and maintenance. Now there's access to free website design tied to offers for free first month's hosting costs and low monthly fees to outsource all the maintenance and updates needed to maintain the site, while enabling the physician or their assistant or office manager to easily update content in a matter of less than 60 seconds.
The availability of electronic medical records systems was rare and very costly and extremely inefficient. Now we have fully-certified EMR systems one can access for free that offer e-prescribing, remote smartphone and iPad access, and are not tethered to contracts of consultants who threaten to take it all away if the physician parts company.
Professional equipment procurement is very different these days. There's Ebay, Dot.med, and many group purchasing organizations (GPOs) that can help you to lower costs on professional equipment, if you are up for all the logistics required to get the equipment to you intact. If you haven't the foggiest idea how to go about arranging for shipping from a location across the country from a retiring physician who knows as little as you (or less) on how to get the item moved, there are logistics specialists that can solve that problem for you so that their assistance plus the shipping cost is well below the differential to purchase new. The concern then becomes warranty and serviceability, which can tie back to cost.
Leases have gone up in some markets and remained stable for several years in others. The commercial real estate market is very different from the housing market and apartment market. In rural America, some physicians practice in an attached, purpose built outbuilding next to their home, like ol' Doc Welby. In other regions, a more traditional practice setting in a Class "A" building commands "triple net" rents per square foot, that make the base rent only part of the story.1
Consulting fees have actually gone down or remained stable by comparison because there is more competition. While the dollar figure we charged per hour was $250 in 2003, that figure is now slightly less per hour, adjusted for inflation. Still, the consulting assistance will be a large part of your startup, especially if you use a national consulting firm like ours that carries professional liability insurance and maintains staff and overhead as opposed to someone between practice management gigs that has never managed a transition to concierge practice before.
The point here is, don't get caught up in the numbers at first. Instead, determine what you want and need (do the Maslow's thing) and how you'll fund the startup budget and then be as frugal and efficient as you must be to meet your objectives.
How to save $25,000 in management consulting fees
In our consulting practice, we use a lengthy (12-page) questionnaire that we send prospective clients to complete in private where the soul searching occurs. We send this out without obligation because we know from experience that often, the soul searching exercise leads to a better, more realistic picture of the work that lies ahead. And sometimes, it leads to a delay or abandonment of the conversion for good reason. We don't ask the physician to return the questionnaire, it's private. Instead, we ask them to use the questionnaire as a tool to prepare for our initial interview.
Whether they choose to work with us or with another consultant, this exercise saves the physician an easy $25,000 in initial consulting fees (the cost of doing the exercise with the consultant across the table or on the phone while the physician comes up with answers and data needed to respond to the consultant's probing questions.)
It is interesting how in some cases, we hear from them in a few weeks or months, and in others, we never hear from them again. Some see what is involved and choose to go the franchise route rather than heave-ho the independent route and fund the transition. That's why we don't ask them to return the form - the decision is personal and sometimes its "face saving".
It is analogous to a complete history and physical on a much larger scale and brings to light many considerations that they physician didn't know they didn't know about themselves, their competition, the market, funding and budget limitations, family reactions to the change, collegue reactions, competitor reactions, payer reactions, patient reactions, employer reactions, hospital administrator reactions and new market opportunities that arise with consumer driven healthcare and direct contracting with local employers.
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1There is no definitive formula for classifying a building, but in the general characteristics of each are as follows:
Class A. These buildings represent the highest quality buildings in their market. They are generally the best looking buildings with the best construction, and possess high quality building infrastructure. Class A buildings also are well-located, have good access, and are professionally managed. As a result of this, they attract the highest quality tenants and also command the highest rents.
Class B. This is the next notch down. Class B buildings are generally a little older, but still have good quality management and tenants. Often times, value-added investors target these buildings as investments since well-located Class B buildings can be returned to their Class A glory through renovation such as facade and common area improvements. Class B buildings should generally not be functionally obsolete and should be well maintained.
Class C. The lowest classification of office building and space is Class C. These are older buildings (usually more than 20), and are located in less desirable areas and are in need of extensive renovation. Architecturally, these buildings are the least desirable and building infrastructure and technology is out-dated. As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.
You may benefit from reading the Handbook of Concierge Medicine Practice Design, written by Maria Todd. To contact Maria, please call toll free: 800.727.4160 or self-schedule a 15-minute no-obligation block on her appointment calendar at http://meetme.so/mariatodd.
