Very interesting, talking strictly about non big city/high end markets, I don't think one could sustain a cash practice that could generate 2M+ in revenues, so then it seems a high volume insurance based multi clinic approach (the one you described), would be the only option since don't single practice setups cap at about 1M in revenue? In other words, could one get to 3 or 4M in revenue in a non big city?
As you said, it's very rare for even top cash psychiatrists to gross more than 1M a year in profit ==> don't have enough time to see patients. On the other hand, it's also rare for a single psychiatrist to own on his own multiple chain clinics that would generate 2M in revenue, especially if they are insurance driven for practical reasons ==> don't have enough time to do all the practice management work. The net-net profit for these two psychiatrists at the end of the day will be similar. In fact, the former will likely win out on a per hour basis, especially if you think about post-tax income. This is why former, while rare, is not nearly as rare as the latter.
That said, it's not rare for psychiatrists to be partners (i.e. not sole owner) in a single specialty or multi-specialty practice group that generates 2M+ in revenue. You can walk into Kaiser today and do exactly that. Your share of the profit on your schedule K is not going to be as high as you imagine.
Yes, if you work really really hard and take on a lot of personal risks, it's more possible to make a much much higher profit if you snowball a large chain of mental health practices. In reality, this is hard for a variety of reasons, and we can go into a lot more details as to why this is, and it's not for a lack of trying, especially in the public sector. The basic reason is that healthcare is a very local and often not very profitable business, and behavioral health even more so. Medicaid/Medicare regulations can be totally different even a few zip codes out. Different locations have vastly different payer mixes and population profiles. It's not like making the same cheeseburger everywhere --> profit. Chains that have been successful are almost ways more specific than general mental health (i.e. substance abuse: Hazelton Betty Ford, eating disorder: Renfrew, etc.) and even then these very rare successful businesses have such thin margins and grow so slowly I can't think of a single "unicorn" company (i.e. 1B+ valuation) of this type that grew from scratch. More common are fixer upper, the obvious stuff that have already been done and always will be done by PEs or other big players: e.g. Bain acquired a bunch of methadone clinics a while back, UHS on a buying spree of behavioral health clinics in the Southwest etc. There's very little creative idea in this space for small time entrepreneurs to get big. Healthcare is just not very scalable like that. Of course, you can slowly grow into a senior management role of a big provider 1) the career path is not very interesting and full of politics 2) doubt will necessarily make more base/total comp than high end cash clinician, esp. if the said big player is a non-profit. That kind of work/career trajectory is just yuck. But hey your milage might differ.
From what I know of startup founders: if you don't build a unicorn, your lifetime earning building 30-100M valuation businesses, especially if they require VC/PE fund raising (and it will if you want to run a chain clinic), which dilutes your capitalization, does not necessarily compare favorably. A regular old busy clinician who pulls in 300-500k either as a cash solo or a partner in an insurance practice, lives a not very conspicuous upper middle class life, and puts the leftover in SPY after 30 years may very well have a higher average net worth. Indeed, the VARIANCE of that net worth will be vastly smaller. It's just not worth it, even from a purely financial perspective. Of course, if you ENJOY running risky business ventures, be my guest: that's completely a separate issue. You are asking why most people don't do this. This is why.
How do you prevent doctors at the other sites from seeing patients under the table thus diverting revenue away from you since you can only manage one office at a time?
You can't prevent your partners/employees from defrauding you. But it would be considered a criminal offense if it's found out (i.e. you are basically stealing...)
In reality, nobody sees patients under the table, because 1) if you are cash you won't be an employee, so you'd be basically stealing from yourself. 2) if you are insurance based, you need the practice's infrastructure for billing, etc. to capture reimbursement. I suppose you could ask patients to surreptitiously give you cash for pills LOL...and I suppose that does indeed occur and get reported in the tabloids...but I think if that's the kind of practice you are running accounting holes in your post-expense profit would be least of your fiscal concerns. You better pay a lot for a quality risk management team.
