Starting a Medical Practice: 9 Crucial Steps to Build a Compliant and Profitable Clinic

From market research to HIPAA compliance, this guide gives physicians the tools they need to launch a successful medical practice

It’s no secret that physicians spend years mastering their clinical skills. But here’s what surprises many of them: The leap from exam room to private practice business ownership takes a completely different toolkit. In fact, according to a 2023 MGMA study, over 60% of new medical practice owners cite financial planning, compliance and staffing as their biggest initial hurdles — not patient care.

Starting a medical practice is more than hanging a sign and opening your doors. It’s a high-stakes business move that requires planning, regulatory knowledge and strategic thinking. If you’re a physician or healthcare leader preparing to launch a new clinic, the steps you take before seeing your first patient will determine your long-term success.

Let’s walk through the essential pieces of building a profitable medical practice, starting with the one most practices overlook.

Step 1: Perform Market Research and Assess Demand

Before you buy equipment or sign a lease, ask yourself: Is there a real need for my services here?

Solid market research is the foundation of any successful medical practice. Yet too often, healthcare professionals skip this critical step, assuming that “being great at what I do” will be enough to build a patient base.

Unfortunately, even the most skilled providers can struggle if they open in an oversaturated area or one where the local payer mix doesn’t support financial sustainability.

Start with these key areas of focus in your medical practice market research.

Demographic Demand

Review local population data, including age groups, chronic disease prevalence and growth trends. For instance, counties with aging populations often have a higher demand for primary care, cardiology and orthopedics. Resources like the U.S. Census Bureau and KFF’s State Health Facts offer region-specific insights.

Competitor Analysis

Are there already too many specialists in your field within a 5–10-mile radius? On the other hand, are nearby clinics overloaded with long wait times?

A needs-based assessment can uncover underserved niches.

Payer Mix and Reimbursement

Knowing whether your area is primarily covered by Medicare, Medicaid or private payers is critical. This mix affects both your revenue and administrative workload. According to the 2024 AMA Physician Practice Benchmark Survey, nearly 80% of private practices cite reimbursement issues as a major business concern.

Referral Dynamics

In competitive markets, aligning yourself with referring providers or establishing connections with local hospitals can drive early patient volume. Consider how your services complement or compete with those around you.

Population Health Indicators

High rates of diabetes, COPD or obesity in a region might suggest opportunities for endocrinology, pulmonology or preventive medicine practices.

It’s also worth hiring a healthcare accounting firm to perform a detailed feasibility study or SWOT analysis if you’re investing significant capital in your practice launch. This extra step may cost upfront, but it’s a smart way to avoid a six-figure mistake.

Step 2: Choose the Right Legal Entity and Business Structure

When it comes to launching a medical practice, your clinical license isn’t the only credential you’ll need. Choosing the right legal entity is a foundational step — one that affects everything from tax exposure to liability protection and compliance reporting.

For most medical practices, you’ll need to form a professional corporation (PC) or professional limited liability company (PLLC). These entities are designed specifically for licensed professionals and vary depending on your state’s laws. In Florida, for example, only licensed healthcare providers can form a PLLC (and only with others in the same profession).

Here’s a quick overview of common business structure options for physicians’ practices:

• PLLC (professional LLC): Offers liability protection for business debts and lawsuits not tied to malpractice. Profits pass through to your personal tax return, which can help avoid double taxation.
• PC (professional corporation): Required in some states for licensed professionals. It may offer a more rigid structure but a clearer separation between personal and business finances.
• S corporation election: Both PCs and PLLCs may elect S corporation status with the IRS to reduce self-employment tax. This is ideal if you plan to take a reasonable salary and distribute additional income as distributions.

Importantly, your choice impacts Medicare/Medicaid enrollment, malpractice coverage, payroll setup and how profits are taxed. Don’t choose based solely on a friend’s advice or a blog article. This is where legal and tax advisors can help you weigh your best long-term fit.

And while the business structure forms your foundation, it’s just one piece. You’ll also need to do the following:

• Obtain an employer identification number (EIN) from the IRS.
• File articles of incorporation or organization with the state.
• Draft an operating agreement (even for single-member entities).
• Open a business bank account (never co-mingle personal and business funds).
• Secure appropriate professional liability (malpractice) insurance.

This is also a good time to consider ownership structure. Will you be the sole owner, or do you plan to bring in physician partners? Will you eventually offer equity to key staff or management?

The right structure provides both protection and flexibility. Our team at James Moore can help you walk through these options, especially if you’re considering a future sale, partnership expansion or multi-state operation.

 

 

Step 3: Secure Financing and Build a Startup Budget

You don’t need a million-dollar loan to start a medical practice. But you do need a financial plan that’s realistic and responsive to your specialty, size and local costs.

The average startup costs for a new primary care or specialty clinic range from $150,000 to $500,000, depending on location, square footage, equipment and staffing levels. That figure can be much higher for surgical or diagnostic practices requiring specialized facilities.

Start by outlining your initial capital needs, such as:

• Medical and office equipment
• Rent, leasehold improvements, and deposits
• EHR and billing systems
• Legal and credentialing fees
• Payroll for 3–6 months
• Insurance (malpractice, general liability, cyber, etc.)
• Marketing and patient acquisition

Once you’ve sketched out these costs, compare financing options:

• Bank loans: Many regional and national lenders have loan products tailored to physicians and healthcare businesses. Some offer favorable terms based on your earning potential.
• SBA loans: The Small Business Administration offers 7(a) and 504 loan programs with lower down payments and longer terms — especially valuable for first-time practice owners.
• Private investors or physician partners: If you’re teaming up with another provider, you’ll need to decide how ownership is split and how profits are distributed.
• Equipment financing: Consider leasing or financing big-ticket items like ultrasound machines or X-ray systems to preserve cash flow.

Don’t underestimate the importance of cash reserves. We recommend planning for at least six months of operating expenses on hand. You’ll have upfront payroll, utilities, and overhead, often before you start collecting revenue from insurance payers.

Building your startup budget is also the ideal time to engage a CPA for doctors with private and group practices. At James Moore, we don’t just run the numbers; we help you ask the right questions.<?p>

Will your revenue cycle support your lease terms? Are you setting realistic expectations for ramp-up? Have you budgeted for billing and collections?

These insights can prevent early cash flow crises and set you up for long-term sustainability.

Step 4: Find the Right Location and Negotiate a Lease

Your practice location is a strategic business decision. The right location can support patient volume, reduce overhead and build long-term equity. The wrong one can drain resources and complicate growth.

Start by identifying a location that aligns with your target patient population and service mix. For example, if you’re launching a pediatric clinic, look for growing suburban neighborhoods with high concentrations of young families. Specialists should consider proximity to referring providers, hospitals or outpatient facilities.

Here are key factors to consider when choosing a location for your medical practice:

• Visibility and accessibility: Your practice should be easy to find and convenient to access by car or public transit. Adequate parking — especially for older or mobility-limited patients — is essential.
• Zoning and medical use approval: Don’t assume every retail or office space is suitable. Confirm local zoning allows medical or clinical use, and verify compliance with Americans with Disabilities Act (ADA) access standards.
• Proximity to competitors and collaborators: Are there complementary providers nearby (e.g., physical therapists near an orthopedist)? Or is the market already saturated?
• Expansion potential: If you plan to add providers or services in the next 3–5 years, look for flexible space or right-of-first-refusal clauses in your lease.

When negotiating your lease, don’t go it alone. Medical leases differ significantly from general commercial leases. For example:

• Buildout allowances: Will the landlord contribute to improvements like exam rooms, ADA-compliant restrooms or electrical upgrades for medical equipment?
• Exclusivity clauses: Can you prevent the landlord from leasing nearby space to a competing provider?
• Escape clauses: What happens if your payer contracts fall through or your revenue projections fall short?

These terms are negotiable, but only if you know what to ask for. It’s worth engaging a healthcare-savvy attorney and CPA to review terms before signing.

At James Moore Advisory Services, we routinely help medical professionals assess lease agreements to make sure their terms support their long-term goals instead of sabotaging them.

Finally, consider the real estate ownership option. In some cases, purchasing a condo suite or freestanding building through a separate LLC can offer tax benefits, control over tenant improvements and long-term appreciation. Just make sure your startup cash flow supports this model. We recommend that you at least request an option to buy if you start out leasing your office.

Step 5: Handle Licensing, Credentialing, and HIPAA Compliance

No matter how well-designed your clinic is, you can’t see a single patient without the proper credentials and licenses. This is where many new practice owners underestimate the timeline and complexity involved.

You’ll need to complete several regulatory steps before opening the doors of your medical practice:

1. Obtain a National Provider Identifier (NPI): Required for billing insurance carriers, your NPI is a unique 10-digit identification number. Apply through the National Plan and Provider Enumeration System (NPPES).
2. Register for a DEA license: If you plan to prescribe controlled substances, you must apply for a license through the Drug Enforcement Administration. This process includes state-specific approvals.
3. State licensure and business registration: Confirm your medical license is active in your state and that your business is registered with the state’s Division of Corporations or similar agency.
4. Medicare and Medicaid enrollment: These credentialing processes can take 60–120 days, depending on your state and specialty. Apply directly through the Centers for Medicare & Medicaid Services (CMS).
5. Private payer credentialing: Each insurance company has its own credentialing process. If you plan to accept major carriers (like Blue Cross, Aetna or Cigna), apply early. Delays can mean months without reimbursement.
6. HIPAA compliance: The Health Insurance Portability and Accountability Act (HIPAA) isn’t just a formality. As a covered entity, your practice must implement strict protocols for handling, storing and transmitting patient information. This includes:

• Creating a written HIPAA privacy and security policy

• Conducting annual risk assessments

• Training employees on data protection

• Using secure email and cloud systems for records

The U.S. Department of Health and Human Services (HHS) enforces HIPAA and issues penalties for noncompliance ranging from $100 to $50,000 per violation.

That’s why many new practices opt to bring in outside compliance consultants or IT firms to ensure systems are secure from day one.

James Moore’s healthcare advisors work with new practices on HIPAA readiness, audit preparation and internal control design. These steps protect patient data and show payers, patients and partners that you’re operating with integrity and diligence.

 

 

Step 6: Build a Technology and Billing Infrastructure

From scheduling to charting to collecting payments, your technology systems are the backbone of daily operations. Yet this is another area where many new practice owners make expensive missteps, either by overspending on unnecessary features or choosing platforms that don’t talk to each other.

Let’s break down the core components you’ll need.

Electronic Health Record (EHR) System

A compliant, user-friendly EHR is essential. Look for a system that:

• Meets ONC-certified standards for security and interoperability
• Supports templates relevant to your specialty
• Integrates with billing and scheduling tools
• Offers patient portal access and telehealth capabilities
• Integrates with your accounting software

Use the federal HealthIT.gov resource to compare EHR options and ensure you’re selecting one that supports value-based care and HIPAA compliance. Some practices opt for cloud-based platforms that reduce IT overhead and improve accessibility for remote providers.

Practice Management (PM) Software

This is the administrative engine of your clinic. Your PM platform should:

• Handle patient intake, insurance verification and appointment scheduling.
• Link directly to your EHR for seamless documentation and billing.
• Generate real-time reports on revenue, collections and payer performance.

Many systems now bundle EHR and PM functionality together, but don’t assume that “integrated” means optimized. Test workflows in demo mode before committing, and involve your front desk and billing team in the decision.

Medical Billing and Revenue Cycle Management (RCM)

You can’t run a business if you’re not collecting payments efficiently. Decide early whether you’ll handle billing in house or outsource to a billing service. An in-house solution is best if you have experienced staff and full control over the process. Outsourcing is helpful if you want predictable fees, fewer staffing issues and built-in payer follow-up.

Either way, your billing system should support clean claim submission, denial management and analytics dashboards so you know where your money is at all times.

Cybersecurity and Compliance Safeguards

Even small practices are now prime targets for cybercrime. You’ll need:

• Business-class antivirus and firewall protection
• Encrypted email and secure messaging tools
• Multi-factor authentication (MFA) on all admin accounts
• Written IT security policies and breach protocols

Consider a third-party risk assessment by an experienced cybersecurity/managed IT provider to document your readiness. A cyber incident could cost far more in fines, lost data and reputation damage than the upfront investment in protection.

In addition to helping your practice run smoothly, a well-built tech stack builds trust. Patients notice when you’re organized, responsive and secure. And insurers will require documented compliance with data handling standards.

Step 7: Assemble Your Team and Plan for HR Compliance

Hiring your staff is one of the most exciting steps in launching a practice. But it’s also one of the most regulated. From job postings to onboarding to compliance, healthcare practices must follow strict HR and employment guidelines to avoid costly mistakes.

Your hiring priorities will likely include:

• Front desk staff: Scheduling, patient check-in, insurance verification
• Medical assistants (MAs) or nurses: Clinical support, vitals, rooming
• Billing and coding specialist: In-house or outsourced
• Practice manager: Especially for multi-provider or multi-location practices

For specialty clinics, you may also need imaging techs, lab staff or additional providers such as physician assistants (PAs) or nurse practitioners (NPs).

But before your first job offer goes out, make sure you’re ready for HR compliance. Key HR and employment tasks include:

• Draft clear job descriptions with defined roles and qualifications.
• Use formal offer letters and employment agreements.
• Set up payroll and tax reporting with an EIN and proper withholding accounts.
• Display required labor law posters and maintain I-9 files.
• Ensure HIPAA training and confidentiality agreements for all staff.
• Establish employee handbooks that define office policies, time off, social media use and disciplinary processes.

From an accounting perspective, you’ll also need to classify workers correctly (W-2 vs. 1099) and track benefits eligibility, overtime pay and exempt vs. non-exempt status under FLSA rules.

If this sounds like a lot, that’s because it is. But it’s necessary to protect your business and build a healthy team culture. Many practices rely on trusted outside providers to manage HR support and benefits compliance from day one.

James Moore’s HR Solutions are designed specifically for growing medical practices. We offer services such as HR consulting, compliance assistance, and employee relations support to ensure your practice meets all regulatory requirements. Our HR subscription services provide continuous, personalized assistance from experienced HR professionals who understand the unique needs of healthcare organizations.

Finally, don’t underestimate the value of onboarding. First impressions matter for your team as well as your patients. Build your hiring process with intention, and your team will reward you with loyalty, compliance and a practice culture that reflects your values.

Step 8: Establish Internal Controls and Audit Readiness

It’s easy to get caught up in patient flow and staffing when you’re launching a practice. But if your back office isn’t built on sound internal controls, you could be setting yourself up for compliance issues, billing errors — or worse, fraud.

Internal controls are simply policies and procedures that safeguard your financial integrity, ensure regulatory compliance and support accurate reporting. They’re especially important in healthcare, where strict billing, coding and documentation standards are enforced by both payers and federal regulators.

Key areas to address from day one:

• Segregation of duties: The person collecting payments should not be the same person reconciling the books. It’s a basic principle that helps prevent fraud or undetected errors.
• Bank reconciliation and oversight: Reconcile bank statements monthly and review accounts payable and receivable regularly. Set thresholds for approvals and dual signatures for certain expenses.
• Billing audits: Establish protocols for reviewing claims before submission and following up on denials. Even if you outsource billing, you are ultimately responsible for accuracy.
• Documentation protocols: Require clear, complete notes that support all billed services, especially for time-based or high-level E/M codes.
• Compliance calendar: Track licensing renewals, HIPAA risk assessments, OSHA reviews and staff training updates.

For some practices, solid internal controls aren’t just good business practice—they’re required. According to the GAO Yellow Book, healthcare entities that receive federal funds or reimbursements are expected to maintain documentation that supports transparency and accountability.

This is where having an experienced assurance advisor matters. At James Moore, we help medical practices establish internal controls and reporting systems that not only reduce audit risk but make financial performance easier to understand.

Whether you’re starting fresh or adapting a hospital-owned model to a private clinic, we’ll help you build the framework to support healthy growth.

Step 9: Launch With Confidence — And a Long-Term Plan

Once your doors are open, the real work begins. But if you’ve built your practice on a strong operational, financial and compliance foundation, you’ll be in a much better position to serve patients and avoid headaches.

Use the momentum of your launch to establish long-term habits:

• Monitor key metrics like collections rate, average reimbursement per encounter and days in A/R.
• Schedule regular reviews with your CPA and legal advisor.
• Invest in continued education for yourself and your staff on healthcare regulations.
• Stay informed about payer trends, policy updates and compliance risks.

Launch Your Medical Practice With Confidence — Partner With James Moore

Launching a practice is a major career step. Done right, it offers independence, flexibility and a lasting legacy. But it takes more than clinical excellence to succeed—it takes strategic planning, financial clarity and compliance from day one.

Starting a medical practice requires expert planning, accurate execution and a clear understanding of healthcare compliance. Whether you’re building your first solo clinic or expanding into a new specialty, our team at James Moore can help.

From entity selection and financial planning to HR guidance and internal controls, we work alongside you to ensure every decision supports your success. You bring the vision. We’ll help you protect it.

Contact a James Moore professional today to start your practice the right way.

 

 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.