Four years of medical school and a three-year residency left Dr. Jeanette R. McDaniel with a pretty good grasp of pediatric medicine.
She felt at ease in a universe where tympanic reflex measurements and purified protein derivative tests are commonplace. The business side of medicine, on the other hand, was a mysterious, silently beckoning dark hole.
Most newly minted doctors "haven't the foggiest idea about business," said Dr. McDaniel, who is in her early 30s and practices medicine in Ellicott City. "I pretty much learned as I went along. Some of it is common sense, but not everybody has good business sense."
It's been four years since Dr. McDaniel ended her residency with the University of Maryland Medical Center, then University Hospital. She now feels confident enough about her business acumen to have tackled the ultimate economic challenge: running a solo practice.
The fiscal environment she exists in is markedly different than that encountered by a solo practitioner starting out, say, 20 years ago.
One similarity is the existence of group practices and hospitals, which have always lured away patients. But the landscape now also includes giant health maintenance organizations and preferred-provider organizations, which have tens of thousands of doctors and millions of patients in their orbits.
Coupled with rising costs for malpractice insurance, medical supplies and the like, it wouldn't be surprising to see medical schools start offering basic business courses -- particularly when American Medical Association statistics indicate that roughly one in four physicians prefer the independent route.
Although new solo practitioners don't confront the crushing failure rate most other start-up businesses do, some of the initial headaches and obstacles are surprisingly similar.
"It costs a lot of money to set up a practice," said Donald L. Ankerholz, who runs a Denver medical consulting firm. "The first problem is convincing a bank that you're a viable candidate for a loan. It's harder now than it used to be."
Doctors have not been immune to the credit crunch, according to Mr. Ankerholz, who is president of Rocky Mountain Professional Consultants Inc.
"What the new doctor needs to do is sit down with somebody and try to identify what the costs are going to be to open up a new practice. With that information, you can then go to a bank and say, 'Here's what I need and here's how I arrived at it,' " Mr. Ankerholz said. "They have a better chance of impressing upon a banker that they're approaching it from a business standpoint."
That's exactly what Dr. McDaniel did. Before opening her Ellicott City office last month, she and her husband, Dennis Downing, put together a business plan. Dr. McDaniel then had to endure rejection.
"People think that physicians can just walk into a bank and flash your degree and they'll give you money," the University of Cincinnati Medical School graduate said. "Well, it's not quite that easy. There are particular institutions that specialize in lending for medical practices."
Trial and error brought several negative responses before First National Bank answered affirmatively.
"You need to itemize and categorize every little item," Dr. McDaniel said. "Supplies, vaccines, rent, insurance, everything you can think of. You need to guesstimate your working capital needs, your projections for the next three years. Don't just do it for a year."
For her, the cost of getting started was roughly $28,000. "I didn't use a lot of equipment, so my initial expenses are probably low compared with other people that I know that have gone out," she said. "It depends on how elaborate you want to get. You can borrow anywhere from $20,000 to $40,000 on up for office furniture, equipment, whatever."
Dr. McDaniel also kept costs down by entering into a lease-to-buy arrangement for her equipment.
But before a solo practitioner takes any patients, it's nice to know how much to charge. A new doctor could always call a few colleagues and compare prices -- that is, if he or she wants to risk a price-fixing conviction, AMA General Counsel Kirk B. Johnson said.
He believes the Justice Department's interest in physician antitrust matters is a little unfair.
"We would agree that price-fixing by physicians is wrong," Mr. Johnson said. "But what hasn't been looked at is the environment in which the physicians are operating today, which is very different than it was a decade ago."
Insurance companies behind health maintenance organizations and preferred provider organizations have "fairly substantial bargaining leverage, because they control a lot of patients," Mr. Johnson said.
"They can pretty much dictate the terms under which a physician provides care, both price and otherwise. It's understandable why physicians would want to seek some collective way to set their fees, or at least to negotiate."
There's at least one instance where physicians can set their fees collectively, and that's when they're in a group practice, said Robert E. Bloch, an attorney with the Justice Department's Antitrust Division.
"The problem arises when independent, competing physicians collectively get together and agree to present a united front to resist the formation of third-party organizations that want to purchase health care services [from health care providers] at discounted rates," Mr. Bloch said. "Any competitor who calls another competitor to discuss prices must be extremely careful that the conversations don't result in some sort of [price-fixing] agreement on fees."
In 1987, Dr. McDaniel attempted to get an overall sense of what like to run a practice. University Hospital had a program that let residents tag along with an established practitioner for a month, and Dr. McDaniel tried to capitalize on it.
RF "I did try to follow a certain private practitioner around the com
munity," she recalled ruefully. "It was not like I was trying to steal his patients or have him hire me, I just wanted to get an idea about private practice. He was just very resistant.
"I was very discouraged," Dr. McDaniel said. "I was just purely interested in learning, not in moving in on his territory."
After leaving University Hospital, the Columbus, Ohio, native began her business education in earnest by joining a local HMO.
"I was an outsider and I didn't want to go back to Ohio. I liked Baltimore and I didn't know the area and I was trying to get a feel for what the waters were like for private practice," Dr. McDaniel said. "I needed that time to kind of do my homework."
She saw what her employer charged for visits, procedures and shots. Dr. McDaniel also gained information about medical insurance programs, how claim forms are filled out and where they are sent. As her business sense grew, Dr. McDaniel worked out an arrangement allowing her to treat private patients inside her employer's offices.
The pediatrician eventually moved on to another HMO and subsequently shared office space with a solo practitioner in Ellicott City, building a nucleus of about 100 patients. She opened her own office this month.
For many physicians, the prospect of running a solo practice holds little allure. One is Dr. William E. Jacott, who's been with a group practice for 22 years and teaches at the University of Minneapolis Medical School.
"Clearly, the number of people going into solo practice from all of our training programs is much less than it used to be," Dr. Jacott said from Minneapolis, where he practices family medicine.
"Regarding the issue of purchasing, certainly group purchasing of materials is much more advantageous than doing it as an individual," he said. "Also, groups can negotiate rates in the case of some prepaid [health provider] systems and can negotiate professional liability premiums better than a solo practitioner can. Again, with a big group you have much more clout to negotiate than you do as just a solo practitioner.
"I have never been in solo practice, and in my own personal opinion, I never would."
Dr. McDaniel, however, thrives on the experience. Maybe it comes naturally, since her father is a dentist with a solo practice in Ohio. "I'm a control-oriented person," Dr. McDaniel said. "I didn't have any control at the HMO -- I have a certain degree of control with this. I like this."
The major financial worry for fledgling solo practitioners, she said, is maintaining an adequate cash flow and coming up with accurate financial projections. "On average, it's about three years before a practice is generating income and breaking even," Dr. McDaniel said.
Therefore, it's critical for her practice to collect accounts receivable. Dr. McDaniel's secretary, Jeanine Baumann, makes sure patient bills are paid on time.
"Jeanine has the hardest job," Dr. McDaniel said. "She is the heavy. She has a very stressful position, but you can count our accounts receivable on a couple of fingers. Jeanine is wonderful.
"I've known physicians to ignore their accounts receivable -- they had $80,000 of outstanding accounts receivable," she said. "I can't afford that. I think my generation is a little different in that this is a business and the bottom line is, I have bills to pay and I work very hard."
Dr. McDaniel realizes that an emphasis on economics alone won't be her salvation. Hers is still a people profession.
"If you don't give good service, you don't stay in business," she said. "And if parents don't care for you, then you're not going to stay in business."