What Does It Actually Cost to Open a Private Practice?

I have had this conversation more times than I can count. A physician calls me, excited, ready to leave their group practice or hospital employment. They have a patient panel, a referral network, maybe even a space in mind. Then I ask: "Have you modeled out your startup costs and break-even point?"

Silence.

Not because they are not smart — they are. But nobody teaches physicians how to build a medical practice business plan. You spend a decade learning to treat patients. Nobody hands you a spreadsheet on the way out.

So I built one.

Before I get into the numbers, I want to be direct about something: the cost estimates you find online are almost always wrong. Not maliciously — they are just generic. A family medicine practice in rural Virginia has a completely different cost structure than a dermatology practice in suburban Atlanta. Specialty matters. Market matters. Staffing model matters.

That is why we built the Private Practice Planning Calculator — a free, interactive tool that lets you input your specialty, adjust every line item, and see a real projection of your startup investment, monthly overhead, and the patient volume you need to reach profitability.

Use it. The rest of this post will help you understand what you are looking at when you do.

The Two Categories That Determine Everything

Private practice startup costs fall into two buckets: one-time startup expenses and recurring monthly overhead. Most physicians underestimate both, but they underestimate the monthly overhead more.

Startup costs are visible. You write a check for build-out, you buy equipment, you pay your attorney. Those numbers feel real.

Monthly overhead is invisible until it is not. You are paying rent whether you see patients or not. Staff salaries do not pause while you are credentialing. Your malpractice premium does not care that you only have twelve patients on the schedule this month.

The break-even calculation — how many patients per day you need to cover your overhead — is the number that determines whether your practice survives year one.

Startup Cost Breakdown by Category

Here is what I typically see across the practices we work with. These are ranges, not guarantees. Your specialty and market will move these numbers significantly.

Office Build-Out and Renovation

This is usually the largest single line item, and it is the one with the widest variance. A practice moving into a turnkey medical office suite might spend $15,000 on cosmetic updates. A practice building out raw commercial space for a procedure-heavy specialty might spend $150,000 or more.

Factors that drive cost up: plumbing for exam rooms, electrical upgrades for imaging equipment, ADA compliance work, HVAC modifications for procedure rooms, and any specialty-specific infrastructure like lead shielding for radiology.

If you are negotiating a lease, push hard for a tenant improvement allowance. Landlords in most markets will contribute $20–$50 per square foot toward build-out in exchange for a longer lease term. That can meaningfully reduce your out-of-pocket.

Medical Equipment

This varies enormously by specialty. A primary care practice can get started with a modest equipment package — exam tables, basic diagnostic tools, a crash cart, an EKG machine. An orthopedic practice needs imaging. A dermatology practice needs procedure equipment and a light source. A cardiology practice needs stress testing equipment.

Do not buy new when used will do. Refurbished medical equipment from reputable vendors is often 40–60% less than new, and for most equipment categories, it performs identically. The exception is anything with a software component that requires manufacturer support contracts — buy new there.

Licensing and Permits

This is the category physicians most consistently underestimate. State medical license, DEA registration, state controlled substance registration, business license, certificate of occupancy, CLIA waiver if you are running in-office labs — it adds up faster than you expect, and the timelines are longer than you expect.

Budget $3,000–$8,000 and start the applications before you sign your lease. Some of these take 60–90 days.

Malpractice Insurance

First-year malpractice costs are higher than ongoing costs for one reason: tail coverage. If you are leaving an employed position, you may need to purchase tail coverage on your prior policy. That can run $10,000–$40,000 depending on your specialty and claims history.

For the new policy itself, primary care physicians in most markets pay $8,000–$15,000 per year for occurrence-based coverage. Surgical specialties and OB/GYN pay significantly more. High-risk specialties in high-litigation states can pay $50,000 or more annually.

Get quotes from at least three carriers. Rates vary more than you would expect for the same coverage.

EHR Setup

I am going to be direct here because this is what we do. Most EHR vendors charge setup fees that range from a few hundred dollars to tens of thousands. The setup fee is often where vendors make their margin, and it is often where practices get locked in.

With Tarevo, the EHR we offer through Affordable Custom EHR, there is no large upfront setup fee. You pay $199 per month, and that includes hosting, support, and the customization work to fit your specialty's workflow. For a practice in its first year, that predictability matters.

Whatever EHR you choose, factor in the full first-year cost — not just the monthly subscription. Include implementation time, training, and any interface fees for labs or e-prescribing.

Credentialing and Enrollment

Credentialing is the process of getting approved to bill insurance carriers. It is slow, it is tedious, and it is non-negotiable if you want to see insured patients.

Budget 90–120 days for credentialing to complete. Budget $2,000–$5,000 if you are using a credentialing service, which I recommend. Doing it yourself is possible, but the time cost is significant, and errors extend the timeline.

One thing practices often miss: you cannot bill for services rendered before your credentialing effective date. If you open your doors in January and your credentialing does not complete until March, you have two months of revenue you cannot collect from those carriers. Plan for that gap in your cash flow model.

Working Capital Reserve

This is the line item that saves practices. A working capital reserve is cash you set aside to cover operating expenses during the ramp-up period — the months between when you open and when your revenue is sufficient to cover overhead.

Most practices need 3–6 months of operating expenses in reserve. If your monthly overhead is $25,000, that means $75,000–$150,000 in working capital. That is not a small number, and it is the number that most undercapitalized practices do not have when they need it.

Monthly Operating Cost Breakdown

Once you are open, these are the costs you pay every month regardless of patient volume.

Rent and lease payments are typically the largest monthly expense. Medical office space in most markets runs $25–$45 per square foot per year. A 1,500 square foot suite runs $3,100–$5,600 per month. Larger practices with procedure rooms pay more.

Staff salaries and benefits are usually the second largest expense. A solo physician practice typically needs at minimum a front desk person and a medical assistant. In most markets, that is $70,000–$100,000 in combined salary before benefits. Add 20–25% for employer-side payroll taxes and benefits.

Medical billing is often outsourced, especially in the early years. Billing services typically charge 5–8% of collections. On $50,000 per month in collections, that is $2,500–$4,000 per month. It is worth it — billing is specialized, and errors cost more than the service fee.

Clinical supplies vary by specialty. Primary care practices spend $500–$1,500 per month. Procedure-heavy specialties spend more.

EHR subscription is a fixed monthly cost. At $199 per month with Tarevo, this is one of the more predictable line items in your budget.

The Number That Matters Most: Break-Even Visits Per Day

All of these costs feed into one calculation: how many patients do you need to see per day to cover your overhead?

The formula is straightforward. Take your total monthly overhead. Divide by your average reimbursement per visit. Divide by your working days per month. That gives you your break-even visits per day.

If your monthly overhead is $30,000, your average reimbursement is $150 per visit, and you work 20 days per month, your break-even is 10 visits per day.

That number tells you whether your business model is viable. If your specialty's typical patient volume is 15–20 visits per day and your break-even is 10, you have margin. If your break-even is 18 and you are a solo physician who realistically sees 14 patients per day, you have a problem to solve before you open.

Run Your Own Numbers

The ranges I have given you are useful context, but they are not your numbers. Your specialty, your market, your staffing model, and your lease terms will produce a different result.

That is why I built the calculator. It is free, it takes about five minutes, and it gives you a downloadable PDF with your full projection — startup costs, monthly overhead, revenue assumptions, break-even analysis, and the specialty-specific factors that affect your profitability.

Use the Private Practice Planning Calculator →

You can adjust every line item. If you know your rent is $4,200 per month, put that in. If you have a quote on malpractice insurance, use that number. The more accurate your inputs, the more useful the output.

When you finish, you can download the full report as a branded PDF. It is the kind of document you can bring to a bank meeting, share with a business partner, or just keep for your own planning.

A Note on EHR Costs in Year One

I want to come back to EHR because it is a decision that affects your practice for years, and it is a decision that is often made under pressure during the startup phase.

The wrong EHR costs you in three ways: direct subscription costs, implementation time, and workflow inefficiency. A system that does not fit your specialty's documentation requirements adds 20–30 minutes to your day. Over a year, that is hundreds of hours.

Tarevo was built for independent practices. It is fully hosted — no servers, no IT staff, no infrastructure to manage. It is customizable to your specialty's workflow. And at $199 per month, it is priced for practices that are watching every dollar in year one.

If you want to see it before you commit, the software demo is available at /software-demo. No sales call required — just enter your email and you get access to the live system.

The Practices That Make It

I have worked with a lot of practices over the years. The ones that make it through year one share a few characteristics.

They modeled their costs before they signed their lease. They had adequate working capital — not just enough to open, but enough to survive the credentialing gap and the slow ramp-up. They chose an EHR that fit their workflow instead of the one their residency used. And they tracked their numbers monthly, not quarterly.

None of that is complicated. It is just planning. And planning starts with knowing what things actually cost.

Start with the calculator. Build from there.