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7 Ways for Doctors to Create Passive Income in Medical Practice

The key to building wealth is to convert active income into passive income. As doctors pursuing financial freedom, in essence, your goal is to create passive income.

When physicians (and all people for that matter) think of this in general, it should be as follows:

  • Work to earn active income
  • Use that active income as seed money to grow passive income
  • Once that passive income exceeds expenses, you are finally free

If you are looking for more of a guide to do this, check out this post. You can also see how I created 5+ sources of passive income in 1 year here.

doctors create passive income
There’s nothing passive about microsurgery. Which is why I make other aspects of my practice passive!

This strategy to create passive income should not be ignored or looked over. It is the key to reaching financial freedom and retiring on your terms at your retirement goal.

Changing my mindset to view active income as a seed to build passive income instead of a means only to buy things has increased my financial well-being dramatically.

However, most doctors think they can only create passive income in their non-clinical life.

And this is just not the case…

Doctors can create passive income clinically as well

Too many physicians ignore the potential of their practice to generate passive income. But we shouldn’t.

There are a bunch of ways to do this:

1. Optimize your practice by investing to reduce expenses or increase reimbursement/income

The best way to reduce expenses is to look at how much you are paying for supplies and seeing if you can get a better deal for the same quality. Too often practices think that there is just one vendor to order supplies from and “the cost is just the cost.” But this isn’t true.

You can check out our approved medical/surgical suppliers here. And this post includes a case study of a practice that saved >40% on their supplies using this technique.

By reducing expenses, you increase your revenue by doing absolutely nothing else. Each procedure, each patient leads to increase and passive income.

Increasing reimbursement or income is obviously another way to increase your practice’s profitability.

And how can you do this and make it passive (or, better said, leveraged) going forward?

The best way to do this is to negotiate with your insurance companies. If you have been in practice for awhile and bring patients value, and therefore save your insurance company money, negotiate higher reimbursement.

If an insurance company is reimbursing poorly, consider dropping them from your network. This may force them to improve their rates with you as they don’t want to lose your services or the patients you bring in.

2. Expand your practice to include more doctors or physician extenders while reducing your role

How can your practice make money when you are not there? Easy!

Hire more providers, whether physicians or not, as employees. And become a passive income earner from your practice!

Even if you don’t want to cut down your hours, you can create passive income by leveraging your practice and other providers’ time. You can only see so many patients or do so many operations.

But you can pay an employee to see patients or do operations as well. You collect the full reimbursement and benefits as a business owner and they make their salary. Win-win.

3. Create secondary businesses within your practice such as a Medispa, skin care line, physical therapy office, etc.

This is an obvious idea to create passive income.

Your patients are likely very loyal to you and will look to you for medical advice even outside of prescriptions, treatments, and procedures.

It is very likely that they would be willing to seek your expertise regarding weight loss, nutrition, supplements, skin care, or other peri-medial therapy. And they would be willing to pay you for these services.

So build these services out after assessing if there is a demand there! And hire staff to run this aspect of your practice while you still see patients in your traditional medical or surgical capacity.

This can be a HUGE source of passive income for you via your practice.

4. Invest in an office building or ambulatory surgery center

Investing in real estate is a wealth accelerator. But usually I am talking about real estate investing in the residential sense i.e. buying homes to rent out to tenants.

But, you could also invest in real estate commercially renting out to medical practices or invest more passively (similar to a syndication) in an ambulatory surgical center. These options are available to physicians who work in these building or not.

The key here is obviously to extensively vet out each opportunity on its own merit. There are good deals and bad deals here just like anything in real estate.

But a cash flowing commercial property with long term medical practices as tenants can be an awesome investment. And, just like residential real estate investing, can become quite passive.

Of course, these options are largely available to those in private practice…

So, what about employed doctors, like me? How can employed doctors create passive income in their practice?

Fear not!

There are still ways to optimize your practice and make things more passive as an employed physician. And I personally use a lot of these.

In general, the name of the game when you are employed is to increase profitability and/or decrease expenses in your practice. So, in that sense it’s the exact same as for private physicians.

But, as an employee, you will not see these returns immediately in your income stream. You have to take the extra step of tracking these improvements and using them aggressively in your subsequent contract negotiations.

As you know, learning to become a skilled contract negotiator is so important for employed physicians.

These two posts are excellent resources for anyone looking to learn the basics of contract negotiation:

With that aside put aside (oh yeah, I did it!), here are 3 more ways employed doctors can create passive income through their practices:

5. Negotiate your contract aggressively maximizing your time on what you value and minimizing time on what you don’t

You’re seeing a theme already. Contract negotiation.

What I mean by this is that too often employed contracts constrain employed physicians time on things that are not valued by those physicians.

So, one way to increase passive income through your practice through a back door is to negotiate your time. In this scenario, maybe making a little less money in your contract can free up a whole lot more of your time.

And maybe you can use this time to more aggressively convert your active income to passive income via real estate investing, leveraging your medical expertise, or any of the other side gigs to make doctors passive money detailed here.

In this case, the money you give up in your contract is covered and then some by passive income that you create through your extra time.

But it’s also ok to negotiate extra time and just do nothing except focus on your self health!

6. Negotiate for administrative or physician extender help

This is very similar to advice above for private practice doctors but with a bit of a twist.

Adding physician extenders to help with clinical work and administrators to help with administrative work gives you much more time to do things that are profitable for your employer. You can see more patients, do more procedures, and operate more when you don’t waste time on the other stuff.

So you need to show your bosses that hiring someone and paying them will free you up to make them WAY more money by being clinically active.

Now, you are able to do the same per capital clinical work, but make more money. And yes, at first, this extra money is going into your bosses pockets.

But when you negotiate, you bring the hard evidence of how much more profit you are bringing and how you want to be compensated for it.

And if they don’t agree, move on to somewhere that does want their physicians to bring in more profit for them.

7. Lower your FTE so that you can open a private practice in which you create passive income

This option is a bit more of leap of faith for many employed physicians but can work really well.

One of my partners dropped down from 1.0 FTE to 0.8 FTE at his employed job. This freed him one day a week to work in a private practice.

You can do this as well and then use all of the strategies already discussed to create passive income via a private practice.

If you increase value and create passive income for your employer, negotiate appropriately, and still get nowhere, this would be my next thought.

Bonus for employed doctors: Use all of the strategies for private practice anyway!

Minimize expenses by recommending better vendors to your employer. Maximize profits by negotiating with insurance. Work with them to build a passive side business like a med spa.

And negotiate ahead of time your piece of the pie or negotiate aggressively afterwards for increased compensation.

Make your successes the success of the overall practice. When your goals are aligned, employers will be much more willing to play ball. And who wouldn’t want to keep doctors motivated to make them more profitable.

And if they don’t want doctors like that, I promise you will find a ton of other practices and employers that do!

You can also learn to find, build, and optimize your perfect practice with these posts:

For more actionable steps to reach financial freedom, check out my free masterclass webinar, 12 Steps to Financial Freedom for Physicians!

What do you think? Can doctors create passive income via their practices? How have you done it? Are you willing to try? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected]

    2 thoughts on “7 Ways for Doctors to Create Passive Income in Medical Practice”

    1. Great post. For employed doctors, you failed to mention one of the best ways for employed doctors to create more income for their professional services. It is to convert to an employment lite contract (still remain employed while you operate your own Professional Corporation). It will dramatically increase your retained income via business structuring, potentially increase your active income–based on MGMA FMV ranges, and provide you a significant tax-advantaged structure to flow your professional primary and side income through. Unlike additional active and passive income sources that often require more of your time, energy, or presence–retained income requires no extra work–it’s just a matter of working smarter rather than harder.

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