How to Start a Medical Practice: Costs and Key Steps

Starting a medical practice means running a healthcare business with startup costs that can reach six figures. Could a doctor open one in a few weeks? Most cannot, since the process usually takes months before the first patient is seen.

This guide is for physicians who plan to leave employment and open a private practice. Credentialing is the process a health plan uses to verify a physician's license, training and history before the practice can bill that plan for care.

Running a practice means running a business, and costs keep rising. Medical group leaders report average year-to-date operating expense growth of about 11.1% in 2025 compared with 2024. In a June 2025 poll, 90% of medical groups reported higher operating costs year over year.

Begin with the business plan and the licensing timeline, since those two set the pace for everything else.

Key Takeaways

• Plan for months of lead time before the first patient.

• Start credentialing early, since health plans often take 90-120 business days.

• A lender will want a business plan with numbers and cash reserves.

• Texas facility licensing must be finished before opening day.

• Labor is the largest operating cost, at 50-60% or more.

How to Start a Medical Practice: The Core Steps in Order

Starting a medical practice is hard mainly because of its order and timing, since many tasks must begin months before the first patient. The difficulty also depends on specialty, payer mix and whether the physician has run an office before. The physician must handle legal, financial, licensing and operational work at the same time. Each area has its own deadlines, so one delay slows every other task.

Here is the step by step order most owners follow. The business plan and the facility license come first, then the legal entity and the malpractice policy. The owner applies for a Type 1 NPI for the physician and a Type 2 group NPI for the practice.

An NPI is a 10-digit number issued through CMS. Credentialing typically takes 90-120 business days from submission, depending on the health plan. Start it as early as possible.

Start the longest tasks first, because they set the earliest possible opening date.

Owners who have never run payroll or signed a lease should add extra time to each task. Most delays come from paperwork that is sent back for a missing detail, not from the big decisions. Keep a shared calendar with each task, its owner and its due date.

Map the timeline backward from the planned opening date to see which tasks run longest.

Licensing and Facility Rules in Texas

In Texas, a practice that counts as a licensed facility must pass an application review, pay fees, win code approval and pass an on-site survey before it can open. To start a medical practice in Texas, the owner first confirms the facility type, then applies for the facility license. The Texas medical practice that offers only office visits faces fewer steps than one that performs procedures.

State Facility Licensing Steps

Texas requires certain healthcare facilities to be licensed, and the rules vary by facility type. The process may include application review, fees, architectural and life-safety code approval, and an initial on-site survey. Inspectors check the building before patients arrive, so construction plans must match the approved design.

For federal certification, the CMS Enrollment & Certification Roadmap for institutional providers gives about 30 days for initial review of web submissions and 65 days for paper submissions. That roadmap covers facilities such as ambulatory surgery centers and hospitals, not most physician offices.

Medical Licensing for Physicians and Staff

Each physician needs a valid Texas medical license before seeing a patient in the state. Nurses and other licensed staff need their own state licenses, and the practice should keep copies on file. Texas House Bill 3794 would have let advanced practice registered nurses practice independently, but it was left pending in committee on April 14, 2025.

Staff licenses should be checked on a set schedule, because one expired license can stop a clinic day. Put each renewal date on a shared calendar. Assign one person to track every license.

Controlled Substance and Prescribing Registrations

A physician who prescribes controlled substances needs a federal DEA registration before writing those prescriptions. The registration is tied to a specific location, so a move to a new office requires a new listing. Plan for this step when the lease is signed.

Confirm the facility type with the state health agency before signing a lease, since the type sets the licensing steps.

Business Plan, Startup Budget and Financing

A lender judges a new practice on its reserve as much as its plan, so both need real numbers before any loan request. A private clinic business plan needs market analysis, services, a marketing strategy, financial projections and an operating plan. Most lenders also ask for five-year projections with clear assumptions.

What the Business Plan Must Cover

The plan should prove that the practice can earn enough to cover its own bills. Each part answers a question a lender will ask. Include these parts in the plan:

• Market analysis of patient need in the local area

• Services offered and the visits each service needs

• A marketing strategy with a monthly budget

• Five-year financial projections with clear assumptions

• An operating plan that lists daily tasks and owners

Startup costs should appear as their own line in the plan. Include equipment, the facility deposit, legal fees and insurance premiums.

Working Capital and Reserves

Plan on at least three to six months of operating expenses in reserve. The reserve covers payroll and rent while new patients slowly arrive and claims are paid. Many new practices run short because they count only the startup costs and forget the early months.

Write the reserve target in the business plan as a dollar amount. Update the figure each quarter as actual expenses come in.

Financing Options

Common funding comes from personal savings, bank loans, medical practice loans and the Small Business Administration. Each source has its own rules for collateral and repayment. Compare the monthly payment of each option against the reserve target.

Keep personal and business accounts separate from the first deposit.

Choosing a Legal Structure and Getting Insured

Most physicians set up a professional corporation or a professional limited liability company (LLC) before they sign anything with a payer. A legal professional usually sets up the entity, since state rules on ownership and liability differ. The choice affects taxes, liability and who can own shares in the practice.

Entity Choices

Many physicians form a professional corporation or a professional LLC, because both limit personal liability for business debts. Some owners choose a general partnership with other doctors, but that form leaves each partner open to shared liability. The structure must be in place before the payer applications are filed, since the legal name must match.

Ask the attorney how the structure handles the owner's pay and any future partners. Those answers shape the operating agreement.

Malpractice Coverage

A claims-made malpractice policy covers claims reported while the policy is active. If the physician switches insurers, that policy needs tail coverage to cover claims reported later. An occurrence policy covers incidents that happen during its term, so it usually needs no tail.

Specialty drives malpractice premiums more than any other factor. A surgeon usually pays more than a family doctor for the same coverage limits. Get quotes from several carriers before choosing one.

Ask whether a prior policy's tail coverage is needed before the old policy ends.

Payer Enrollment, Credentialing and Health Plan Contracts

Credentialing takes 90-120 business days from submission, and the exact time depends on the health plan. The payer will not approve the practice until its file is complete and verified. Payer contracting starts only after the practice is ready to bill.

The Credentialing Timeline

A payer cannot be applied to until the practice address, phone number and insurance are final. Changing any of these later can restart the review. Count the full 90-120 business days from the date the application is submitted, not from the date it was started.

Track each payer's timeline on a single sheet. Note the submission date, the follow-up date and the approval date for each one.

Preparing the CAQH Profile

The CAQH profile must be complete before the practice submits any payer application. Payers pull physician data from this shared profile, so gaps slow every file. Keep it current with the license, malpractice certificate, work history and references.

Before submitting, check these items on the profile:

• Current state medical license numbers and expiration dates

• Malpractice certificate with the correct limits

• Work history with no unexplained gaps

• Board certification and training records

• Practice address and phone number that match the lease

Submit the same practice address and phone number on every payer application.

Location, Equipment and Practice Space

Choose a site that is accessible to patients and zoned for medical use before any lease is signed. Patients should be able to reach the door, park nearby and find the suite without help. A site that looks good but is zoned for retail can block the whole plan.

Choosing a Site

Visit the site at the hours patients will arrive, and count the parking spots at the busiest time. Look at the drive from main roads and public transit stops. Check the building's access for patients with mobility needs.

Use this checklist when comparing sites:

• Zoning that allows medical office use

• Enough parking for patients and staff at peak hours

• Entry and restrooms that meet accessibility rules

• Visibility from the street or a main road

• Nearby referral doctors or hospitals within a short drive

A site near other specialists can help build a referral base over time.

Leasing and Layout

A sublease or a room rental lowers start-up costs, especially for a first year. Some owners share space with another physician on set days. Read the lease for hours, repairs and rent increases before signing.

Exam rooms and check-in space set the layout of the suite. Place the front desk so staff can see the waiting area and the entry door. Give each exam room a sink and a clear path to the hall.

Ask the landlord in writing whether the zoning allows medical use.

Operating Costs, Staffing and Technology Budget

Labor is the largest cost of running a medical practice, taking 50-60% or more of operating costs once provider pay is included. Support staff salaries and benefits alone run about a quarter of practice revenue. The largest share comes from the people, so plan staffing first.

Labor and Staffing Costs

Support staff include front desk workers, medical assistants and billing staff. Their pay and benefits set a floor for the budget even in slow months. Provider pay adds a second large block that grows with each new physician hired.

Hire staff in stages, tied to patient volume. Add a second medical assistant only after the daily schedule stays full for several weeks.

Supplies, Technology and Billing

Clinical supplies and pharmaceuticals typically make up 5% to 10% of operating expenses. Technology and IT usually run 2% to 3% of outpatient revenue. Billing and revenue cycle costs are often estimated at about 5% of collections.

The table shows where each cost line usually lands and what moves it.

Category	Typical share	What moves it
Labor	50-60% or more of operating costs	Provider pay and the number of support staff
Supplies	5-10% of operating expenses	Mix of procedures and drug prices
Technology	2-3% of outpatient revenue	EHR license count and IT support contracts
Billing	About 5% of collections	Claim volume and use of an outside billing firm
Facility	5-10% of total expenses	Rent per square foot and suite size

Set the billing budget before hiring, since billing costs tie to collections.

Patient Records, Privacy and Compliance Setup

Every vendor that touches patient data needs a signed business associate agreement before go-live. The agreement is a contract that makes the vendor follow HIPAA privacy and security rules. Choose the electronic health record (EHR) system with that contract in mind.

Choosing an EHR

An EHR should work well for daily charting and for billing. Cloud access lets staff log in from home or a second office. Billing integration cuts down on double entry and missed charges.

Compare each vendor on these criteria before choosing one:

Criterion	Why it matters	What to check
Cloud access	Staff can work remotely during outages	Uptime promise and the backup location
Billing integration	Charges flow to claims without retyping	Direct link to the clearinghouse used
Encryption	Protects patient data in storage and transit	Encryption standard named in writing
Audit trail	Shows who viewed or changed each record	Log kept for the period the practice needs
Support	Fixes problems during clinic hours	Phone help during the practice's open hours

Testing each system with a sample schedule shows which one fits the workflow.

HIPAA Basics

HIPAA is the federal law that protects patient health information. It requires a business associate agreement with any vendor that can access that information. The practice must also limit staff access to only the records each person needs.

An NPI is also required for HIPAA transactions, such as electronic claims. Staff should train on privacy rules before the first patient visit.

Request the vendor's audit trail and encryption details in writing before signing.

Is Owning a Medical Practice Profitable?

Private practices can collect more than hospital-owned groups, but profit depends on payer mix and cost control. Owning a medical practice can be profitable, but the result depends on payer mix, overhead and collections. A practice with strong payers and tight overhead keeps more of each dollar it bills.

Revenue and Payment Pressure

Private-practice primary care physicians reported 16.12% more collections in 2024 than physicians in hospital- or system-owned groups. Their median work RVUs were 6.23% lower, which means the private practices billed fewer work units. Payer mix decides whether the collections hold up over time.

The table compares the practice models and the trends reported for each.

Model	Collections trend	What drives results
Private practice	16.12% more collections than hospital- or system-owned groups in 2024	Payer mix and overhead per visit
Hospital-owned group	Lower collections than private primary care in 2024	System-level payer contracts and salaries
Physician-owned practice	39.33% more encounters in 2024 than the prior year	Visit volume and scheduling capacity

Value-Based Models and Sustainability

Value-based models pay the practice partly for quality and outcomes rather than for each visit. The contract sets the quality measures, so results depend on how well the practice tracks them. Missing a measure can cut the payment even when visit volume is high.

Track collections per encounter monthly from the first quarter.

Opening Day, Marketing and Early Operations

The first patients usually come from referrals, so start those conversations before the opening date. To start a private practice as a doctor, line up referral partners and call coverage before the first patient arrives. Local physicians, hospitals and clinics can send patients once they know the practice exists.

Referral Networks and Online Presence

Medical practices usually need after-hours call coverage, so patients can reach a clinician at night. Coverage can come from an answering service or a physician group that shares the load. Set the routing rules before opening so calls never go unanswered.

Create a referral packet with the services, hours and a contact for urgent questions. Send it to nearby doctors and hospital discharge planners. Online listings help too, but referrals usually bring the first steady patients.

New practices can take about a year for staff to reach full performance. Expect slow weeks while the team learns the workflow.

Patients need a working phone line on day one, including after hours.

Each opening week brings small problems with forms, schedules and claims, so the team should meet each day to fix them.

Opening Week Checklist

Use this checklist before the doors open:

• Phone line and after-hours routing tested with real calls

• EHR and billing system tested with sample claims

• Signed payer contracts stored in one file

• Posted hours and a clear entry sign on the door

• Front desk staff trained on check-in and consent forms

Schedule a 90-day review of patient volume and claim denials.

Conclusion

A medical practice opens on time when the licensing, payer and budget work starts first. The business plan and the timeline set the pace, and labor and billing costs shape the budget. Each step depends on the one before it, so a delay in one area moves the whole launch.

Draft the business plan this month and set a target opening date from the credentialing timeline.

FAQ

How hard is it to start a medical practice?

It is hard mainly because many tasks must begin months before the first patient, so lead time is the biggest challenge. Difficulty depends on specialty, payer mix and whether the physician has run an office before. Licensing, legal setup, payer enrollment and financing all run at once. Owners who map the timeline backward from the opening date can see which tasks run longest and start those first.

Is owning a medical practice profitable?

It can be, but profit depends on payer mix, overhead and collections. Labor is the largest cost, and it takes 50-60% or more of operating costs once provider pay is included. Private practices reported 16.12% more collections than hospital- or system-owned groups in 2024. Tracking collections per encounter each month helps an owner catch problems early.

How long does credentialing take?

Credentialing takes 90-120 business days from submission, and the exact time varies by health plan. The clock does not start until the application is complete. Missing details or a stale CAQH profile can add weeks. Starting early gives the practice the best chance of opening on schedule.