Starting your own retina practice can be daunting, but it’s also the most rewarding professional endeavor you’ll undertake. Numerous resources and checklists exist to help you through the process, including contracting and credentialing, office space, equipment purchases, payroll, hiring, marketing, suppliers, and billing. Navigating these mechanics of practice building is relatively straightforward—you simply execute each task or find a vendor to handle it.
AT A GLANCE
- When starting a retina practice, you must have comprehensive systems to keep track of the high-cost drugs, from purchase to payment.
- To determine your required initial investment, calculate your first 90 to 180 days of operating expenses, including all cash outlays.
- A reasonable working capital target is 1 to 2 months of non-medication operating expenses after zeroing medication float.
What’s less clear and rarely discussed are several specific, critically important aspects of your new practice, and these make all the difference between success and struggle. Here are the most crucial considerations for effectively starting and operating your new retina clinic.
MASTER YOUR HIGH-COST DRUG MANAGEMENT
Using high-cost injectable medications is inherently challenging but essential for the modern retina practice. Changes in their use can devastate your finances and cash flow unless you manage them properly, while reimbursement failures can cripple your practice and destroy your financial stability. If you’re using more than a few high-cost medications each month, you need comprehensive systems to keep track of them, spanning from ordering to collections and even paying invoices. The dollars associated with medications will quickly dwarf all other financial aspects and may distort your entire financial picture without proper management. I recommend being all in or all out.
Inventory Management
Implement an inventory management software system from day 1. These systems typically have no out-of-pocket costs and are invaluable for tracking every dollar and dose. Daily reports that highlight missing or unbilled doses are essential, and they will save you significant headaches and money by preventing costly oversights that multiply rapidly if not addressed in a timely fashion.
Prior Authorization and Step Therapy Mastery
Understanding the ins and outs of prior authorizations and step therapy on the individual patient level must become a core competency with established protocols, workflows, and clear accountability. As the provider, you need 100% confidence that prior authorization and patient assistance have been secured before administering an injection. You must understand the applicable step therapy progression for each patient at every visit so that you can order and obtain prior authorization for the correct medication. This knowledge must be patient-specific and available in the clinic during every encounter—there’s no room for doubt or mistakes. While you can handle this personally during your first weeks or months as a solo practitioner, you’ll need to delegate this complex, time-consuming process to a dedicated staff member early, before the clinic is too busy to allow you the time to train them properly.
Medication Float Management Strategy
Medication float is best defined as: expected collections from medication + value of medication inventory – total medication invoices. This encompasses your entire medication financial cycle. Your default target should be zero, except in special circumstances. Bring this equation to zero weekly by paying invoices in amounts needed to balance it. Whatever remains in your bank account after balancing represents your true cash-basis profit, which can be safely reinvested or distributed.
Avoid taking distributions until you’ve zeroed this equation through invoice payments, unless you’re knowingly drawing against future profits. Without this discipline, your financial statements will show false profits or losses, rendering them essentially useless for decision-making, and you will lose all sense of financial performance.
STRATEGIC INITIAL INVESTMENT AND FINANCING
Investment requirements depend on numerous factors: office size and location, equipment type and quantity, and personal practice style preferences. While it can be difficult to provide specific advice given these variables, you can minimize startup costs with creative thinking.
To determine your required initial investment, calculate your first 90 to 180 days of operating expenses, including all cash outlays. The timeline variance depends on how quickly you expect patient visits and collections to grow. Both are difficult to control and involve educated guessing, but trust yourself; whether you ramp up quickly or slowly, hard work will lead to success.
Once you determine your capital requirements, consider multiple funding sources such as personal savings, including cash and investments from non-tax-advantaged accounts. Don’t hesitate to invest in yourself; your retina practice will likely become the best-performing asset you’ll ever invest in.
Consider family and friend investments. While this may feel uncomfortable, retina practices differ fundamentally from typical speculative startups. Standard startups have high failure rates; retina practices have very high success probabilities. Don’t hesitate to use family funds to start your practice. Banks typically offer physician loans or lines of credit, although you may need collateral and will pay interest. Don’t let startup capital requirements prevent you from moving forward because they are a solvable challenge.
UNDERSTAND INITIAL CASH FLOW PATTERNS
You’ll begin with startup capital in your business account, regardless of source. Collections flow in while expenses flow out. After zeroing your medication float, you’ll see the weekly bank balance begin to increase at some point—your first sign of sustainable profitability. Monthly draws or paychecks will slow this timeline, naturally. Remember that personal benefits (ie, health insurance), 401(k) contributions, and paychecks represent cash withdrawals from the business. These reduce business profitability but increase the personal benefits from your work.
When you see excess cash accumulating, consider your options carefully. While reinvesting in equipment or services may (or may not) accelerate growth, consider prioritizing repaying initial startup capital and building working capital reserves. Repay startup capital first, regardless of source. If your startup capital was $100,000, your business needs $100,000 in profit to repay it.
ESTABLISHING APPROPRIATE WORKING CAPITAL
Working capital—ie, money in your business checking account for daily operating expenses considering collection fluctuations—lacks clear industry guidelines. Solo practitioners can maintain lower reserves by ensuring personal emergency fund access. A reasonable working capital target is 1 to 2 months of non-medication operating expenses after zeroing medication float.
Remember, you are building working capital from company profits, and company profits are taxed, even if not withdrawn. Working capital is the post-tax dollars that you leave in your company; it is earned and taxed as profit, but not paid out in wages or distributions. To obtain $100,000 from operations to be held for working capital, you’ll need approximately $200,000 in pre-tax profit to cover roughly $100,000 in taxes. That can feel like a lot of work and effort, with nothing ending up in your personal bank account.
MANAGE ACCOUNTS RECEIVABLE DYNAMICS
Like every medical practice, you’ll maintain substantial accounts receivable due to the lag between service delivery and payment collection. In my experience, average collection lag is 60 days, although this varies regionally.
Think of accounts receivable in aging buckets: < 30, 30 to 60, 60 to 90, 90 to 120, and > 120 days from the service date (Figure). Standard practices will always have some accounts receivable in each bucket, typically as a fixed percentage of collections, distributed across timeframes.
Figure. Accounts receivable can be conceptualized as buckets, and you will only realize cash flow after each bucket has been filled.
Critically, you must “fill” each bucket with charges before realizing true cash flow. It’s oversimplified to think, “I know there will be a lag until cash starts coming in.” Your charges must fill each bucket as a percentage of collections before full cash flow materializes for that patient visit level.
Simultaneously, rapid practice growth means expanding the size of each bucket as a percentage of collections. Each month, some growth in your charges must fill the now-larger buckets and will rest in longer-dated categories. Early in the setting of high growth, this creates constant cash flow drag, making it feel like you are seeing more patients without proportional cash flow increases.
Adding high-cost injectables compounds this effect through dramatic charge increases; it also compresses your overall margins massively, while increasing your total revenue exponentially. Recognize this pattern as normal and expected—your persistence will be rewarded as the practice matures.
PREPARATION AND PERSISTENCE ARE KEY
Once you have your monitoring systems set up, it only takes a few minutes each week to keep everything on track. It is critical that you, personally, have a true pulse on your business, just like you need to have a pulse on your patients. Setting healthy management habits early will help you avoid common pitfalls of starting a practice. They will also ensure you thrive as a business owner and your patients are receiving the best possible care.
