How to Start Your Private Practice the Easy Way (in 17 Detailed Steps)
Okay, the title is a bit misleading. There is nothing especially easy about starting a private practice. But, there is definitely a "hard way" and "easier way" to go about it. The hard way involves stumbling through the process yourself, learning through mistakes. Lots of mistakes. Insurance companies don't provide a "Intro to Insurance for Dummies" (though they should!) If you haven't worked in an agency that bills to insurance (which I had not) the process of learning the lingo of insurance is like learning a foreign language without a textbook.
The following is a list of steps you'll need to go through to start your private practice. If you plan to bill insurance, you'll have to follow all the steps. If you don't, there will be some you can skip. While I tried to put the steps in order of needing to do them, some of the tasks have kind of a "chicken or the egg" quality to them. For instance, while it's logical to sign up for insurance before taking the step of securing a practice location, the process of applying for insurance requires a business address.
The process can get a bit overwhelming and you may wonder if it's worth the trouble to jump through all these hoops. I will say, once you're through the hoops, things get a lot easier. By the time you've been in private practice 6 months, you will feel much more confident.
Note: a few of the links below are affiliate links, most of the links are not. Regardless, all sites linked here are solid resources that I use myself.
Step 1: Be sure you're ready for private practice. If you've just finished your professional degree, I'd strongly suggest working for, at least, 3-5 years in a mental health agency such as community mental health or university counseling. You need to feel confident and competent facing a wide range of clinical presentations. Working in solo practice is isolating. It's important to have colleagues with whom you can consult about cases. This is especially important in the early years of your career.
Step 2: Consider Increasing Your Malpractice Coverage. I assume that you have a malpractice policy that covered you during your training and your work at previous sites. If not, you definitely need to get malpractice insurance. The company you choose may be influenced by the type of training you had. As a psychologist, I got started with using the APA's The Trust because that's what I used as a doctoral student. I still use that today, but there are many other options for you to explore. How much is enough coverage? Consider the assets that you may need to protect. If you're not sure, consult with a lawyer, with your own licensing board, with your professional organization or with your malpractice insurance company.
Step 3: Decide on a business structure. While it's possible to operate your private practice under your own name without creating a business structure, you risk more should you ever be sued for malpractice. Many solo therapists run their business as an LLC (limited liability company). Running your practice as an LLC can help provide an extra layer of protection of your personal assets, should you be sued. Setting up an LLC is relatively easy. You can just set up your LLC through your state's business registry. You may want a lawyer to set up your business structure for you (though I did mine myself). In my area, that process runs $700-$1000. It's especially important to hire a lawyer if you plan to open a partnership, since the documents drafted would protect you should your partnership dissolve. Partnerships and group practices also need to register as a PLLC (professional LLC) that limits your liability if one of your partners/colleagues/employees gets sued. These have to be registered with a state board. Some states require this of all professionals, some of just practices with more than one member. If you've never run a business before, you may feel really unsure about how to structure your business. There are some good online resources that can help, but nothing is more useful than consulting with a good accountant. Even if you decide to do your own taxes, it's really useful to have an accountant to talk to about business issues.
Step 4: Consider Applying for a Tax ID number. You need to decide what identification number you will use when paying your taxes on your private practice income. It may be possible to use your SSN if you are in solo practice and plan to have no employees. However, there are several situations in which having a EIN (employer identification number) is necessary or just convenient (it limits who has access to your SSN.) It's free to do through the IRS. Every insurance company you work with will ask for your tax ID. If you feel unsure about business structure or EIN choice, it's wise to consult with an accountant. A good accountant can help you understand the process of opening a small business and how you'll need to pay your taxes (hint: quarterly!)
Step 5: Choose office space. Are you planning on being full-time in private practice or part-time? Either way, it may make sense to start your practice by sharing office space with another therapist. This keeps your cost down while you're working to build up your practice. If you're sharing space, be sure to ask around to ensure that you're paying a fair amount for the space you're using. Or, better yet, rent your own space and then sublet when you're not using it. That way, you know you're getting a fair price and you have more control over when you can use the space.
If you're renting, or buying, your own space, consider how much you can afford monthly. Ideally, you'll want to keep your overhead expenses at less than 10 percent of your income. Of course, if can be hard to know, in advance, how much you can expect to earn. It's a good idea to network with other therapists in your area who have your same credentials to ask them about issues like budgeting. Regardless of what you decide, having your business address is an important part of this process, as you will need a business address to move forward with the process of being credentialed by insurance agents. If you're planning on working 100% online, you may still want to secure an address for business reasons. If you don't have a business address, you will need to designate a registered agent (often an attorney) for your LLC. More information on this topic can be found here.
Step 6: Set up your finances. The financial aspects of setting up a practice are among the most intimidating parts of running your own practice. You may worry that you're not financially able to go out on your own. Indeed, whether you are cash pay or take insurance, it can be a few months before you start having significant income coming into your practice.
Where to bank
You will need a separate bank account from your personal account. While you can certainly set that up at a local bank, you're more likely to earn optimal interest on your money by shopping around online. Charles Schwab, Sofi and Robinhood are three of the good options (among many) that you have. You can set up a checking account that is super easy to access online and will get you a premium rate of interest on your money. Want the best interst? Check out the Gold Program at Robinhood, which boosts the interest you get on your money, gives bonuses on investing and more. Similarly, Sofi has Sofi Plus which is a paid membership that gives you higher interest rates and other perks. While paying to bank sounds counterintuitive, getting a big boost in your interest rate can mean that you make far more money than you're spending.
Start Up Money
You will want to have enough money saved to furnish your office and pay your office expenses for the first 3-6 months before starting your practice. If you don't have that much saved, you'll need a loan for the start-up money for your practice, I encourage you to shop around for your best rate online. SoFi has a personal loan program that you might consider.
Credit Card
You'll have a lot of little, and big, expenses as you start up your private practice and into the future. Using your personal credit card, or cash, is an option. However, by getting a business credit card, one that you use only for your deductible business expenses, you'll find it easier to account for your deductions come tax time. I use a Capital One Spark card because it gives you a good amount of cash back with your purchases. If you set up many of your expenses billed to your card, the cash back can add up quickly.
Retirement
Just starting your practice, it can be easy to forget that, someday, you'll be retiring from it. At the end of your first year of working, you should consider setting up at SEP IRA account. SEP stands for Simplified Employee Pension. It's available to those who are self-employed (and those who employ others). It's my understanding that you can put away 25% of your income into this account each year (there may be some limits if your income is especially high.) This contribution is tax deductible so it's a really amazing way to save. You can set up your SEP IRA at online banks like Charles Schwab and Sofi that offer both banking and investment in the same place.
Step 7: Decide about taking insurance. If you search on the internet, you'll hear the view that "good therapists" don't take insurance. I've also heard "I'm a specialty therapist. I don't take insurance." In my view, it's not about whether or not you're highly skilled or a specialist. Your choice will be impacted by your practice location, your values and beliefs, and your target clinical population. In terms of location, therapists in affluent areas can more easily get away with not taking insurance by catering to privileged clientele. In many parts of the country, there are too few people who are affluent enough to private pay. The other consideration is ethics. As a specialty psychologist myself, I don't feel like it would be ethical of me not to accept insurance because my specialty population is new parents. Parents who are pregnant, postpartum or who have lost a baby have likely paid thousands of dollars in medical care and have met their insurance deductible. I would not feel good about asking them to pay me privately on top of all their other expenses.
But, in the end, the choice is up to you. If you don't accept insurance, you have the freedom of not needing to formally diagnose your clients (but you do still need to keep excellent documentation). You can set your own fees or even run a sliding scale. You don't need to feel worried that the insurance company might question or limit the amount of sessions you're providing. There are definitely benefits to it. If you're not going to take insurance, go ahead and skip to Step 11.
If you do want to bill to insurance, take heart. It's easier than it's ever been before. Using an Electronic Health Record (EHR)* makes the process seamless (once you get it set up!)
Step 8: Obtain your National Provider Identification (NPI) number. Your NPI number is your ID number as a therapist. You'll need it all the time when interacting with insurance companies. You apply for it here. The application asks for your business address.
Step 9: Fill out the CAQH. The CAQH (which stands for Council for Affordable Quality Healthcare) is an organization that collects and maintains all the information that you need to be credentialed by insurance companies. It's a beast of a form. Gather up all your college transcripts, information on your training sites, your licensure information and malpractice insurance policy (a digital copy will need to be uploaded.) You even need things like the physical address of the universities that you attended. So, grab yourself some snacks and a hot beverage. It's going to be a while before you're done with it. After you're finished, you'll have to reattest your CAQH every quarter. That seems burdensome, but you may find that you catch small changes that you've made (e.g. a new phone number.) Fortunately, CAQH e-mails you a reminder about the need to reattest.
Step 10: Get Credentialed. The process of being accepted as an in-network provider on insurance panels is called credentialing. It can be a tedious process that involves applying to each insurance company and retyping much of the information that you already put on the CAQH. Knowing that the insurance companies have access to your CAQH will, undoubtedly, make you puzzled about why you have to retype this information into yet another form. Don't let this raise your blood pressure. Just get more snacks and another hot drink. Take some deep breaths and tell yourself: this too shall pass. Or, easier yet, hire a billing professional to handle your credentialing for you. Billing professionals used to be a nearly essential part of running a practice. However, with newer, electronic claim filing, many therapists are doing their own billing. However, if you plan to take multiple insurance plans, hiring a billing professional can make your life much easier, especially during the credentialing process. You can find ones that bill a flat monthly fee. Most that I've heard of bill per claim. I've heard amounts from 5-9% mentioned by colleagues who use them.
Credentialing: Universal vs. Selective Approach: You may wonder how many insurance companies to get credentialed with. There are two approaches. If you're using a billing professional or credentialing service, they will likely offer to credential you with every insurance panel available. This "Universal" approach has the advantage of getting you in-network with all the available plans which means you can serve every potential client who comes to your practice. The downside of this approach is that you will not have the time to read and carefully consider each of these contracts. You may find yourself as an in-network provider in plans that you aren't happy to work with. Of course, you can always opt out of in-network status with any insurance carrier if you are unhappy with the way that they are treating you (e.g. frequently rejecting claims, paying you far less than other plans, etc.) The second approach is the "Selective" approach to credentialing. In this approach, you pick a smaller number of insurance plans to become credentialed with. Being credentialed with fewer plans lets be more familiar with the contract you've signed and lets you understand more about how to successfully bill that company. Selective credentialing works especially well if you have a clinical specialty that is tied to a certain insurance. For example, if you want to work with the military population, you could take Tricare and other related plans. If you want to see teens in foster care, you could take your state's Medicaid program. Or, if you want to work with seniors, you could get credentialed with Medicare and with the common "Part B" program in your state.
Step 11: Learn the Billing Lingo. In graduate school, you learned the clinical lingo of diagnosis, but if you haven't billed to insurance, you have more to learn. In order to file a claim with insurance, you will need more than an ICD-10 diagnosis (your EHR, if you use one, will have the DSM-5 and ICD-10 diagnosis codes integrated into the notes program.) You will also need to use a CPT code. CPT stands for "Current Procedural Terminology." A CPT code indicates the type of service that you are providing related to a given diagnosis. For instance, if you do an intake interview, it is a CPT code 90791. Most CPT codes for therapists are tied to the length of service, such as the common 60-minute Psychotherapy code 90837 or 45-minute Psychotherapy code 90834. You can get a list of common CPT codes here. The diagnosis and CPT code, along with the date of service, your NPI number, practice information and the client's name, address, date of birth and insurance information all go onto a visually complex looking form called the CMS-1500. The CMS stands for "Centers for Medicare and Medicaid Services" The 1500 stands for the number of sections on the form. Just kidding. It only feels like there are 1500 sections. Just looking at the CMS-1500 makes my heart glad that my Electronic Health Record (EHR) fills out this form for me, with just a few clicks. How does it do that? You enter all your practice information into your EHR when you sign up. When you get a new client, they enter all their personal and insurance information into your program (at least, that's how it works on my EHR.) After intake, you enter the diagnosis and service code. A few clicks later, the CMS-1500 is complete and sent off to the client's insurance company. After each session, you will send off another CMS-1500 to the insurance company specifying the service you delivered that session.
One caution on diagnoses: insurance only covers diagnoses that are thought to be health conditions, not life transitions. So, you can't bill for something like "Bereavement" or for "Parent-Child Relational Problem." You must justify that you a providing a service that is medically necessary. If the symptoms of a life transition are sufficiently disruptive, you may be able to bill the client as an Adjustment Disorder, a diagnosis which is accepted by insurance. Before agreeing to bill to insurance, you will need to let you clients know that not every condition is covered by insurance. For instance, couples counseling for normal relationship discord is not covered. However, conjoint counseling may be covered if you are treating a disorder in one partner and the other partner is there to help in that treatment process.
Note 11b: On Secondary Billing. While I have always done my own billing, secondary billing sometimes tests my resolve. What is secondary billing? It's a hellscape, at best a purgatory, that you must trudge through if your client has more than one insurance company. When a client is covered by two (or, I shudder to consider, more) insurance companies, one of them is considered primary to the other one. For instance, for those with Medicare, they may also have a secondary, supplemental insurance that covers what Medicare does not. In order to process secondary claims, you must first submit the claim to the primary insurance company. Once the primary has issued a decision on the claim, you then submit the claim again to the secondary along with the EOB (explanation of benefits) from the primary. This can be a cumbersome but acceptable process if you are in-network with both insurance companies. However, if you're OON (out-of-network) with the primary insurance company, you may find that the whole process gets a lot harder. And, to add insult to injury, you will be bound by the rate that the primary insurance company decides to offer you as an OON provider, so the secondary company (even if you're in-network) will only pay you what the primary company allows for your services.
How does one navigate this rocky terrain? Well, options. If you're not billing insurance, obviously, you're in the clear. Even if you do bill insurance, you can say "I'm really sorry, but I do my own billing and secondary billing is beyond my skill set. You can pay me in full, and I will give you a superbill that you can submit to your primary. Once they've paid, you can take a copy of that same superbill along with the EOB from your primary, and submit it to your secondary insurance company." Basically, you can send your client to billing purgatory in your place. CAVEAT: If you've agreed to be an in-network provider with a state sponsored insurance (Medicaid/Medicare) you may not be able to avoid secondary insurance billing. You'll need to check with those agencies to ask what the guidelines are on secondary billing. Of course, the other option is to hire a billing professional and let them wrangle with it. Honestly, normal insurance billing is so easy these days, things like secondary billing are the primary reason to hire a biller. What do I do about this issue? I have stated on my website that I must be in-network with the primary insurance company in order to accept a client and that I won't process secondary claims. However, in reality, if an established client suddenly gets a secondary insurance company (or, often, a new primary company) I continue to work with them and just suffer through the process.
Step 12: Learn the Rules of Billing Insurance (aka Avoid Committing Insurance Fraud.) When you contract with an insurance company, you agree that you are not charging them any more than you are charging anyone else. They want to know that they have your best rate. So, this means that you cannot slide your fees for other clients without insurance. However, just because you charge the same rate to everyone, insurance companies don't all pay the same rate. One company may pay you 100% of your rate, another might pay 70%. It's okay for you to accept a lower rate than you charge from an insurance company, as long as you charged the same rate as you charge everyone. Unfortunately, you cannot charge a private pay client any less than you'd charge the insurance company. Nor can you ever "waive" a copay or other patient responsibility in billing. That would be considered insurance fraud.
What do I do about this? I set my rates just a few dollars higher than the best paying insurance company gives. That means, at the very least, that I'm not charging private pay clients significantly more than I'm charging insurance. Why not charge exactly what my highest paying insurance company pays? Charging a few dollars more than they have been paying allows you to see any changes in the allowable rate by your highest paying company (i.e. if they raise the allowable amount, you'll see your income go up. If you miss seeing that they've raised the allowable and continue to charge them the same amount, they will just continue to pay you what you've made in the past.)
What can you do for clients who are struggling financially? While you cannot slide your fees for clients, you can offer payment plans. Be sure to be fair to the client AND to yourself. Be sure you're getting a fair amount of payment for each session, even if you're willing to allow part of the balanced to be paid at a later date. What I would not suggest doing: Do not just tell people "oh, pay me when you can." Therapy charges can add up quickly. A large, unpaid balance can become an issue in the therapeutic relationship.
What to do if someone doesn't pay their bill? You can use a collections agency. That's not something that I have chosen to do in my practice, but some practices do use collections agencies. While you must charge everyone the same and you must make a real effort to collect your fees from your clients, you do not have to go so far as to use a collections agency. If, after a period of time, you feel you have made a good faith effort to collect the balance, you are able to forgive the remaining balance. By forgiving the balance, you "write it off" on your books, but you cannot use this lost income as a "write off" on taxes. (Note: this is my read on the contracts that I have signed. Be sure to check your contracts to review the policies regarding non-payment before your forgive co-pays or other patient responsibilities.)
Step 12.5: Other Billing Issues to Remember (Billing FAQ) I sometimes get questions from therapists new to private practice who have read this article. One recent question was about billing to insurance when you know the co-pay in advance. Specifically, the question was if you should charge the insurance company your full amount, or the amount minus the co-pay. It reminded me that I had this same question when I first started. The answer is, you bill the full amount of the session charge. The insurance company is expecting you to charge them your full fee. What the insurance company will pay you is what you bill them minus the co-pay. Imagine you have a client with a $25 co-pay and your fee is $150. You need to bill insurance $150 and they will pay you $125 and you will collect $25 from the client. If you were to bill the insurance company just $125, they would pay you $100. So, always charge your full fee, and always charge the same fee to each client and payer for any given CPT code.
An additional question was about when to collect the co-pay/co-insurance. You can collect the co-pay at the time of the session or after the claim has processed through insurance. Just know, if the client has a 20% co-insurance, that is not 20% of your fee, it is 20% of the insurance company's allowable charge for that service. So, you may wait and see what the insurance company allows before charging co-insurance for those who pay a percentage of the cost.
Step 13: Choose How to Keep Records. While it's now required that you submit your insurance claims electronically you can still keep your records in any format that you wish (paper, Word document, electronic health record.) Most people are choosing to use an Electronic Health Recorder (EHR.) EHRs enable you to work online, so you can work from home or your office. They use bank-level encryption to protect your records. They let you bill directly from the EHR, often with just one click. Other features may include allowing client's to self-schedule, sending e-invoices, and receiving payment online. There are several options on the market and surely will be more to come. I'd recommend narrowing it down to two or three and looking at each in detail. Most have a free trial period that lets you check out the features in advance of committing. Some well-known ones are Therapy Notes and Therapy Appointment. My personal preference is for Simple Practice*. Simple Practice provides a wide range of services including sending out intake questionnaires and consent forms prior to the first appointment, integrated one-click billing and invoicing, HIPAA-compliant telehealth, secure messaging and an easy to use patient portal. It even has an "autopay" setting where you can, with your client's consent, set the program to bill your client's credit card (or Health Savings Card) after each session. These tools help you collect your payments promptly, which you'll find is an important part of surviving in private practice. Simple Practice also tracks your payments as they come back in, helping you see when you're paid, both by insurance and by your clients. I love the ease of Simple Practice. I know other therapists who swear by their own EHR. I would just say to choose carefully. While it's possible to switch your records from one system to another, it's a hassle. Most likely, you'll want to stick with one program.
Step 14: Develop Your Practice Documents
When setting up your EHR, you'll need to create the documents that will help your clients understand the process of therapy, the limits of confidentiality, your billing practices, and other policies. You'll also need templates for record keeping. Fortunately, EHRs like Simple Practice provide some of these templates for you so you can customize them to your needs. Listed below are some guidelines & examples for you to consider when you're making your practice documents. These suggestions may not fit with your profession or your state's legal guidelines, so always consult with local authorities before finalizing your practice documents.
Consent Forms & Practice Policies You'll need an informed consent for psychotherapy that explains the type(s) of therapy you do, the risks and benefits, and your expectations for your clients participation in the process. You'll also want a basic Practice Policies document that describes issues related to session length, billing, insurance, policies for legal testimony and more. If you're offering telehealth, you'll need a separate Telehealth Consent document. You might also create a special consent form for other forms of therapy, such as a couples, or family therapy, consent form. EHRs allow you to customize which forms are sent to each new client you take on. They will often have templates for you to use.
Record Templates Every insurance company you contract with will have a list of essential elements that they will be looking for should they audit your records. Whether or not you decide to submit to insurance, keeping your records in a tidy, timely and thorough way will protect you and help you better serve your clients. At minimum, your records should include: the stop and start times of the session and session length; information on mental status, mood, affect, social and cognitive functioning; symptoms; progress since the last session; therapeutic interventions provided, any updates to the diagnosis or treatment plan; changes to medication; and your follow-up plan. If you're keeping a paper file, you should sign your note. If you're using an EHR, you need to "lock" the note to prevent editing as a way of "signing."
Do know, if you are accepting insurance that they may audit you and request to see you treatment notes. I would encourage you to keep your notes as brief as possible while fulfilling the basic requirements of what the insurance company will be looking for. Ideally, your EHR will allow you to keep separate "psychotherapy notes" which allows you to put in more personal details about your client that you would not want shared with insurance. I don't know about the other EHRs, but Simple Practice provides this feature. If your records are requested, you can simply download only the session notes, leaving the psychotherapy notes private.
Step 15: Shape Your Online Presence. In today's world, people expect you to have a website. Personally, I love using my website as a way to store handouts and other resources that I would have needed to print out in the past. Making a website can be a fun and rewarding process. If you're feeling tech-phobic about it, just know that it's now as easy as creating a Power Point presentation. There are multiple websites that allow you to create your website content. I used Weebly (which has been bought out by Square). Most website creating tools allow you to choose a template and get started quickly. You can usually create a free website that will be branded with the site's logo. Once you ready to commit, you can buy a domain name (i.e. yourpracticename.com) and connect your free site to that domain. There are many web registrars who sell domain names (e.g. GoDaddy, Google, Register.com.) Be wary of any that want to charge you more than $12/year. Google domains is a solid choice. Once you've registered your website, you can also create any number of e-mail addresses based on your website name (i.e. [email protected].) You could even have separate address for billing (i.e. [email protected].) This is a fun step. It helps you feel like your practice is a really coming together.
Outside of just your website, you'll want to be sure you're properly listed on all the search engines. You might also consider listing with one of the therapist referral websites (e.g. PsychologyToday.com). Personally, I didn't make that choice but many people do. If I were going to, I think I'd start with goodtherapy.org. Being enrolled with them allows you to access continuing education, unlimited, included in the price of your listing. There are lots of other options. Just search for "find a therapist" and see what pops up.
Step 16: Design your Printed Materials. For me, one of the most fun parts of setting up my practice was making business cards and other printed materials. Though, I can't say that I use my business cards all that often. That said, it's important to have some of them for when you attend in-person networking events. I've found that you can get really amazing deals through Vistaprint. The cards may not feel like the highest quality but they are very affordable. Search for coupon codes, Vistaprint regularly offers discounts. If you'd like some really high-end, printed materials, consider getting a sample pack from one of the companies that specializes in really unique printed goods like Print Peppermint. Print Peppermint, and other stores like it, offer real metallic printing on diverse materials, including things like cork and wood. You can get a little carried away with all the options. Maybe that's just me, but I found it to be the fun part of this process.
Step 17: Consider a Giving Presentations to Referral Sources. One of your best marketing tools is simply developing a presentation on a topic and offering it to potential referral sources. Perhaps you excel at stress management. If so, maybe you could check with your local hospital to see if they'd like to learn about how their cardiac patients could learn how to relax. Or maybe you love working with eating disorders. You could consider giving a presentation at your nearest college counseling center. To get started, make a list of the type of clients that you most enjoy working with. Use that list to shape the professional identity that you want to market to others.
Okay, so there are some of the major steps you'll need to set up a private practice. If you have questions, corrections (like a link that no longer works!) or suggestions, just e-mail me a [email protected]. Good luck!
The following is a list of steps you'll need to go through to start your private practice. If you plan to bill insurance, you'll have to follow all the steps. If you don't, there will be some you can skip. While I tried to put the steps in order of needing to do them, some of the tasks have kind of a "chicken or the egg" quality to them. For instance, while it's logical to sign up for insurance before taking the step of securing a practice location, the process of applying for insurance requires a business address.
The process can get a bit overwhelming and you may wonder if it's worth the trouble to jump through all these hoops. I will say, once you're through the hoops, things get a lot easier. By the time you've been in private practice 6 months, you will feel much more confident.
Note: a few of the links below are affiliate links, most of the links are not. Regardless, all sites linked here are solid resources that I use myself.
Step 1: Be sure you're ready for private practice. If you've just finished your professional degree, I'd strongly suggest working for, at least, 3-5 years in a mental health agency such as community mental health or university counseling. You need to feel confident and competent facing a wide range of clinical presentations. Working in solo practice is isolating. It's important to have colleagues with whom you can consult about cases. This is especially important in the early years of your career.
Step 2: Consider Increasing Your Malpractice Coverage. I assume that you have a malpractice policy that covered you during your training and your work at previous sites. If not, you definitely need to get malpractice insurance. The company you choose may be influenced by the type of training you had. As a psychologist, I got started with using the APA's The Trust because that's what I used as a doctoral student. I still use that today, but there are many other options for you to explore. How much is enough coverage? Consider the assets that you may need to protect. If you're not sure, consult with a lawyer, with your own licensing board, with your professional organization or with your malpractice insurance company.
Step 3: Decide on a business structure. While it's possible to operate your private practice under your own name without creating a business structure, you risk more should you ever be sued for malpractice. Many solo therapists run their business as an LLC (limited liability company). Running your practice as an LLC can help provide an extra layer of protection of your personal assets, should you be sued. Setting up an LLC is relatively easy. You can just set up your LLC through your state's business registry. You may want a lawyer to set up your business structure for you (though I did mine myself). In my area, that process runs $700-$1000. It's especially important to hire a lawyer if you plan to open a partnership, since the documents drafted would protect you should your partnership dissolve. Partnerships and group practices also need to register as a PLLC (professional LLC) that limits your liability if one of your partners/colleagues/employees gets sued. These have to be registered with a state board. Some states require this of all professionals, some of just practices with more than one member. If you've never run a business before, you may feel really unsure about how to structure your business. There are some good online resources that can help, but nothing is more useful than consulting with a good accountant. Even if you decide to do your own taxes, it's really useful to have an accountant to talk to about business issues.
Step 4: Consider Applying for a Tax ID number. You need to decide what identification number you will use when paying your taxes on your private practice income. It may be possible to use your SSN if you are in solo practice and plan to have no employees. However, there are several situations in which having a EIN (employer identification number) is necessary or just convenient (it limits who has access to your SSN.) It's free to do through the IRS. Every insurance company you work with will ask for your tax ID. If you feel unsure about business structure or EIN choice, it's wise to consult with an accountant. A good accountant can help you understand the process of opening a small business and how you'll need to pay your taxes (hint: quarterly!)
Step 5: Choose office space. Are you planning on being full-time in private practice or part-time? Either way, it may make sense to start your practice by sharing office space with another therapist. This keeps your cost down while you're working to build up your practice. If you're sharing space, be sure to ask around to ensure that you're paying a fair amount for the space you're using. Or, better yet, rent your own space and then sublet when you're not using it. That way, you know you're getting a fair price and you have more control over when you can use the space.
If you're renting, or buying, your own space, consider how much you can afford monthly. Ideally, you'll want to keep your overhead expenses at less than 10 percent of your income. Of course, if can be hard to know, in advance, how much you can expect to earn. It's a good idea to network with other therapists in your area who have your same credentials to ask them about issues like budgeting. Regardless of what you decide, having your business address is an important part of this process, as you will need a business address to move forward with the process of being credentialed by insurance agents. If you're planning on working 100% online, you may still want to secure an address for business reasons. If you don't have a business address, you will need to designate a registered agent (often an attorney) for your LLC. More information on this topic can be found here.
Step 6: Set up your finances. The financial aspects of setting up a practice are among the most intimidating parts of running your own practice. You may worry that you're not financially able to go out on your own. Indeed, whether you are cash pay or take insurance, it can be a few months before you start having significant income coming into your practice.
Where to bank
You will need a separate bank account from your personal account. While you can certainly set that up at a local bank, you're more likely to earn optimal interest on your money by shopping around online. Charles Schwab, Sofi and Robinhood are three of the good options (among many) that you have. You can set up a checking account that is super easy to access online and will get you a premium rate of interest on your money. Want the best interst? Check out the Gold Program at Robinhood, which boosts the interest you get on your money, gives bonuses on investing and more. Similarly, Sofi has Sofi Plus which is a paid membership that gives you higher interest rates and other perks. While paying to bank sounds counterintuitive, getting a big boost in your interest rate can mean that you make far more money than you're spending.
Start Up Money
You will want to have enough money saved to furnish your office and pay your office expenses for the first 3-6 months before starting your practice. If you don't have that much saved, you'll need a loan for the start-up money for your practice, I encourage you to shop around for your best rate online. SoFi has a personal loan program that you might consider.
Credit Card
You'll have a lot of little, and big, expenses as you start up your private practice and into the future. Using your personal credit card, or cash, is an option. However, by getting a business credit card, one that you use only for your deductible business expenses, you'll find it easier to account for your deductions come tax time. I use a Capital One Spark card because it gives you a good amount of cash back with your purchases. If you set up many of your expenses billed to your card, the cash back can add up quickly.
Retirement
Just starting your practice, it can be easy to forget that, someday, you'll be retiring from it. At the end of your first year of working, you should consider setting up at SEP IRA account. SEP stands for Simplified Employee Pension. It's available to those who are self-employed (and those who employ others). It's my understanding that you can put away 25% of your income into this account each year (there may be some limits if your income is especially high.) This contribution is tax deductible so it's a really amazing way to save. You can set up your SEP IRA at online banks like Charles Schwab and Sofi that offer both banking and investment in the same place.
Step 7: Decide about taking insurance. If you search on the internet, you'll hear the view that "good therapists" don't take insurance. I've also heard "I'm a specialty therapist. I don't take insurance." In my view, it's not about whether or not you're highly skilled or a specialist. Your choice will be impacted by your practice location, your values and beliefs, and your target clinical population. In terms of location, therapists in affluent areas can more easily get away with not taking insurance by catering to privileged clientele. In many parts of the country, there are too few people who are affluent enough to private pay. The other consideration is ethics. As a specialty psychologist myself, I don't feel like it would be ethical of me not to accept insurance because my specialty population is new parents. Parents who are pregnant, postpartum or who have lost a baby have likely paid thousands of dollars in medical care and have met their insurance deductible. I would not feel good about asking them to pay me privately on top of all their other expenses.
But, in the end, the choice is up to you. If you don't accept insurance, you have the freedom of not needing to formally diagnose your clients (but you do still need to keep excellent documentation). You can set your own fees or even run a sliding scale. You don't need to feel worried that the insurance company might question or limit the amount of sessions you're providing. There are definitely benefits to it. If you're not going to take insurance, go ahead and skip to Step 11.
If you do want to bill to insurance, take heart. It's easier than it's ever been before. Using an Electronic Health Record (EHR)* makes the process seamless (once you get it set up!)
Step 8: Obtain your National Provider Identification (NPI) number. Your NPI number is your ID number as a therapist. You'll need it all the time when interacting with insurance companies. You apply for it here. The application asks for your business address.
Step 9: Fill out the CAQH. The CAQH (which stands for Council for Affordable Quality Healthcare) is an organization that collects and maintains all the information that you need to be credentialed by insurance companies. It's a beast of a form. Gather up all your college transcripts, information on your training sites, your licensure information and malpractice insurance policy (a digital copy will need to be uploaded.) You even need things like the physical address of the universities that you attended. So, grab yourself some snacks and a hot beverage. It's going to be a while before you're done with it. After you're finished, you'll have to reattest your CAQH every quarter. That seems burdensome, but you may find that you catch small changes that you've made (e.g. a new phone number.) Fortunately, CAQH e-mails you a reminder about the need to reattest.
Step 10: Get Credentialed. The process of being accepted as an in-network provider on insurance panels is called credentialing. It can be a tedious process that involves applying to each insurance company and retyping much of the information that you already put on the CAQH. Knowing that the insurance companies have access to your CAQH will, undoubtedly, make you puzzled about why you have to retype this information into yet another form. Don't let this raise your blood pressure. Just get more snacks and another hot drink. Take some deep breaths and tell yourself: this too shall pass. Or, easier yet, hire a billing professional to handle your credentialing for you. Billing professionals used to be a nearly essential part of running a practice. However, with newer, electronic claim filing, many therapists are doing their own billing. However, if you plan to take multiple insurance plans, hiring a billing professional can make your life much easier, especially during the credentialing process. You can find ones that bill a flat monthly fee. Most that I've heard of bill per claim. I've heard amounts from 5-9% mentioned by colleagues who use them.
Credentialing: Universal vs. Selective Approach: You may wonder how many insurance companies to get credentialed with. There are two approaches. If you're using a billing professional or credentialing service, they will likely offer to credential you with every insurance panel available. This "Universal" approach has the advantage of getting you in-network with all the available plans which means you can serve every potential client who comes to your practice. The downside of this approach is that you will not have the time to read and carefully consider each of these contracts. You may find yourself as an in-network provider in plans that you aren't happy to work with. Of course, you can always opt out of in-network status with any insurance carrier if you are unhappy with the way that they are treating you (e.g. frequently rejecting claims, paying you far less than other plans, etc.) The second approach is the "Selective" approach to credentialing. In this approach, you pick a smaller number of insurance plans to become credentialed with. Being credentialed with fewer plans lets be more familiar with the contract you've signed and lets you understand more about how to successfully bill that company. Selective credentialing works especially well if you have a clinical specialty that is tied to a certain insurance. For example, if you want to work with the military population, you could take Tricare and other related plans. If you want to see teens in foster care, you could take your state's Medicaid program. Or, if you want to work with seniors, you could get credentialed with Medicare and with the common "Part B" program in your state.
Step 11: Learn the Billing Lingo. In graduate school, you learned the clinical lingo of diagnosis, but if you haven't billed to insurance, you have more to learn. In order to file a claim with insurance, you will need more than an ICD-10 diagnosis (your EHR, if you use one, will have the DSM-5 and ICD-10 diagnosis codes integrated into the notes program.) You will also need to use a CPT code. CPT stands for "Current Procedural Terminology." A CPT code indicates the type of service that you are providing related to a given diagnosis. For instance, if you do an intake interview, it is a CPT code 90791. Most CPT codes for therapists are tied to the length of service, such as the common 60-minute Psychotherapy code 90837 or 45-minute Psychotherapy code 90834. You can get a list of common CPT codes here. The diagnosis and CPT code, along with the date of service, your NPI number, practice information and the client's name, address, date of birth and insurance information all go onto a visually complex looking form called the CMS-1500. The CMS stands for "Centers for Medicare and Medicaid Services" The 1500 stands for the number of sections on the form. Just kidding. It only feels like there are 1500 sections. Just looking at the CMS-1500 makes my heart glad that my Electronic Health Record (EHR) fills out this form for me, with just a few clicks. How does it do that? You enter all your practice information into your EHR when you sign up. When you get a new client, they enter all their personal and insurance information into your program (at least, that's how it works on my EHR.) After intake, you enter the diagnosis and service code. A few clicks later, the CMS-1500 is complete and sent off to the client's insurance company. After each session, you will send off another CMS-1500 to the insurance company specifying the service you delivered that session.
One caution on diagnoses: insurance only covers diagnoses that are thought to be health conditions, not life transitions. So, you can't bill for something like "Bereavement" or for "Parent-Child Relational Problem." You must justify that you a providing a service that is medically necessary. If the symptoms of a life transition are sufficiently disruptive, you may be able to bill the client as an Adjustment Disorder, a diagnosis which is accepted by insurance. Before agreeing to bill to insurance, you will need to let you clients know that not every condition is covered by insurance. For instance, couples counseling for normal relationship discord is not covered. However, conjoint counseling may be covered if you are treating a disorder in one partner and the other partner is there to help in that treatment process.
Note 11b: On Secondary Billing. While I have always done my own billing, secondary billing sometimes tests my resolve. What is secondary billing? It's a hellscape, at best a purgatory, that you must trudge through if your client has more than one insurance company. When a client is covered by two (or, I shudder to consider, more) insurance companies, one of them is considered primary to the other one. For instance, for those with Medicare, they may also have a secondary, supplemental insurance that covers what Medicare does not. In order to process secondary claims, you must first submit the claim to the primary insurance company. Once the primary has issued a decision on the claim, you then submit the claim again to the secondary along with the EOB (explanation of benefits) from the primary. This can be a cumbersome but acceptable process if you are in-network with both insurance companies. However, if you're OON (out-of-network) with the primary insurance company, you may find that the whole process gets a lot harder. And, to add insult to injury, you will be bound by the rate that the primary insurance company decides to offer you as an OON provider, so the secondary company (even if you're in-network) will only pay you what the primary company allows for your services.
How does one navigate this rocky terrain? Well, options. If you're not billing insurance, obviously, you're in the clear. Even if you do bill insurance, you can say "I'm really sorry, but I do my own billing and secondary billing is beyond my skill set. You can pay me in full, and I will give you a superbill that you can submit to your primary. Once they've paid, you can take a copy of that same superbill along with the EOB from your primary, and submit it to your secondary insurance company." Basically, you can send your client to billing purgatory in your place. CAVEAT: If you've agreed to be an in-network provider with a state sponsored insurance (Medicaid/Medicare) you may not be able to avoid secondary insurance billing. You'll need to check with those agencies to ask what the guidelines are on secondary billing. Of course, the other option is to hire a billing professional and let them wrangle with it. Honestly, normal insurance billing is so easy these days, things like secondary billing are the primary reason to hire a biller. What do I do about this issue? I have stated on my website that I must be in-network with the primary insurance company in order to accept a client and that I won't process secondary claims. However, in reality, if an established client suddenly gets a secondary insurance company (or, often, a new primary company) I continue to work with them and just suffer through the process.
Step 12: Learn the Rules of Billing Insurance (aka Avoid Committing Insurance Fraud.) When you contract with an insurance company, you agree that you are not charging them any more than you are charging anyone else. They want to know that they have your best rate. So, this means that you cannot slide your fees for other clients without insurance. However, just because you charge the same rate to everyone, insurance companies don't all pay the same rate. One company may pay you 100% of your rate, another might pay 70%. It's okay for you to accept a lower rate than you charge from an insurance company, as long as you charged the same rate as you charge everyone. Unfortunately, you cannot charge a private pay client any less than you'd charge the insurance company. Nor can you ever "waive" a copay or other patient responsibility in billing. That would be considered insurance fraud.
What do I do about this? I set my rates just a few dollars higher than the best paying insurance company gives. That means, at the very least, that I'm not charging private pay clients significantly more than I'm charging insurance. Why not charge exactly what my highest paying insurance company pays? Charging a few dollars more than they have been paying allows you to see any changes in the allowable rate by your highest paying company (i.e. if they raise the allowable amount, you'll see your income go up. If you miss seeing that they've raised the allowable and continue to charge them the same amount, they will just continue to pay you what you've made in the past.)
What can you do for clients who are struggling financially? While you cannot slide your fees for clients, you can offer payment plans. Be sure to be fair to the client AND to yourself. Be sure you're getting a fair amount of payment for each session, even if you're willing to allow part of the balanced to be paid at a later date. What I would not suggest doing: Do not just tell people "oh, pay me when you can." Therapy charges can add up quickly. A large, unpaid balance can become an issue in the therapeutic relationship.
What to do if someone doesn't pay their bill? You can use a collections agency. That's not something that I have chosen to do in my practice, but some practices do use collections agencies. While you must charge everyone the same and you must make a real effort to collect your fees from your clients, you do not have to go so far as to use a collections agency. If, after a period of time, you feel you have made a good faith effort to collect the balance, you are able to forgive the remaining balance. By forgiving the balance, you "write it off" on your books, but you cannot use this lost income as a "write off" on taxes. (Note: this is my read on the contracts that I have signed. Be sure to check your contracts to review the policies regarding non-payment before your forgive co-pays or other patient responsibilities.)
Step 12.5: Other Billing Issues to Remember (Billing FAQ) I sometimes get questions from therapists new to private practice who have read this article. One recent question was about billing to insurance when you know the co-pay in advance. Specifically, the question was if you should charge the insurance company your full amount, or the amount minus the co-pay. It reminded me that I had this same question when I first started. The answer is, you bill the full amount of the session charge. The insurance company is expecting you to charge them your full fee. What the insurance company will pay you is what you bill them minus the co-pay. Imagine you have a client with a $25 co-pay and your fee is $150. You need to bill insurance $150 and they will pay you $125 and you will collect $25 from the client. If you were to bill the insurance company just $125, they would pay you $100. So, always charge your full fee, and always charge the same fee to each client and payer for any given CPT code.
An additional question was about when to collect the co-pay/co-insurance. You can collect the co-pay at the time of the session or after the claim has processed through insurance. Just know, if the client has a 20% co-insurance, that is not 20% of your fee, it is 20% of the insurance company's allowable charge for that service. So, you may wait and see what the insurance company allows before charging co-insurance for those who pay a percentage of the cost.
Step 13: Choose How to Keep Records. While it's now required that you submit your insurance claims electronically you can still keep your records in any format that you wish (paper, Word document, electronic health record.) Most people are choosing to use an Electronic Health Recorder (EHR.) EHRs enable you to work online, so you can work from home or your office. They use bank-level encryption to protect your records. They let you bill directly from the EHR, often with just one click. Other features may include allowing client's to self-schedule, sending e-invoices, and receiving payment online. There are several options on the market and surely will be more to come. I'd recommend narrowing it down to two or three and looking at each in detail. Most have a free trial period that lets you check out the features in advance of committing. Some well-known ones are Therapy Notes and Therapy Appointment. My personal preference is for Simple Practice*. Simple Practice provides a wide range of services including sending out intake questionnaires and consent forms prior to the first appointment, integrated one-click billing and invoicing, HIPAA-compliant telehealth, secure messaging and an easy to use patient portal. It even has an "autopay" setting where you can, with your client's consent, set the program to bill your client's credit card (or Health Savings Card) after each session. These tools help you collect your payments promptly, which you'll find is an important part of surviving in private practice. Simple Practice also tracks your payments as they come back in, helping you see when you're paid, both by insurance and by your clients. I love the ease of Simple Practice. I know other therapists who swear by their own EHR. I would just say to choose carefully. While it's possible to switch your records from one system to another, it's a hassle. Most likely, you'll want to stick with one program.
Step 14: Develop Your Practice Documents
When setting up your EHR, you'll need to create the documents that will help your clients understand the process of therapy, the limits of confidentiality, your billing practices, and other policies. You'll also need templates for record keeping. Fortunately, EHRs like Simple Practice provide some of these templates for you so you can customize them to your needs. Listed below are some guidelines & examples for you to consider when you're making your practice documents. These suggestions may not fit with your profession or your state's legal guidelines, so always consult with local authorities before finalizing your practice documents.
Consent Forms & Practice Policies You'll need an informed consent for psychotherapy that explains the type(s) of therapy you do, the risks and benefits, and your expectations for your clients participation in the process. You'll also want a basic Practice Policies document that describes issues related to session length, billing, insurance, policies for legal testimony and more. If you're offering telehealth, you'll need a separate Telehealth Consent document. You might also create a special consent form for other forms of therapy, such as a couples, or family therapy, consent form. EHRs allow you to customize which forms are sent to each new client you take on. They will often have templates for you to use.
Record Templates Every insurance company you contract with will have a list of essential elements that they will be looking for should they audit your records. Whether or not you decide to submit to insurance, keeping your records in a tidy, timely and thorough way will protect you and help you better serve your clients. At minimum, your records should include: the stop and start times of the session and session length; information on mental status, mood, affect, social and cognitive functioning; symptoms; progress since the last session; therapeutic interventions provided, any updates to the diagnosis or treatment plan; changes to medication; and your follow-up plan. If you're keeping a paper file, you should sign your note. If you're using an EHR, you need to "lock" the note to prevent editing as a way of "signing."
Do know, if you are accepting insurance that they may audit you and request to see you treatment notes. I would encourage you to keep your notes as brief as possible while fulfilling the basic requirements of what the insurance company will be looking for. Ideally, your EHR will allow you to keep separate "psychotherapy notes" which allows you to put in more personal details about your client that you would not want shared with insurance. I don't know about the other EHRs, but Simple Practice provides this feature. If your records are requested, you can simply download only the session notes, leaving the psychotherapy notes private.
Step 15: Shape Your Online Presence. In today's world, people expect you to have a website. Personally, I love using my website as a way to store handouts and other resources that I would have needed to print out in the past. Making a website can be a fun and rewarding process. If you're feeling tech-phobic about it, just know that it's now as easy as creating a Power Point presentation. There are multiple websites that allow you to create your website content. I used Weebly (which has been bought out by Square). Most website creating tools allow you to choose a template and get started quickly. You can usually create a free website that will be branded with the site's logo. Once you ready to commit, you can buy a domain name (i.e. yourpracticename.com) and connect your free site to that domain. There are many web registrars who sell domain names (e.g. GoDaddy, Google, Register.com.) Be wary of any that want to charge you more than $12/year. Google domains is a solid choice. Once you've registered your website, you can also create any number of e-mail addresses based on your website name (i.e. [email protected].) You could even have separate address for billing (i.e. [email protected].) This is a fun step. It helps you feel like your practice is a really coming together.
Outside of just your website, you'll want to be sure you're properly listed on all the search engines. You might also consider listing with one of the therapist referral websites (e.g. PsychologyToday.com). Personally, I didn't make that choice but many people do. If I were going to, I think I'd start with goodtherapy.org. Being enrolled with them allows you to access continuing education, unlimited, included in the price of your listing. There are lots of other options. Just search for "find a therapist" and see what pops up.
Step 16: Design your Printed Materials. For me, one of the most fun parts of setting up my practice was making business cards and other printed materials. Though, I can't say that I use my business cards all that often. That said, it's important to have some of them for when you attend in-person networking events. I've found that you can get really amazing deals through Vistaprint. The cards may not feel like the highest quality but they are very affordable. Search for coupon codes, Vistaprint regularly offers discounts. If you'd like some really high-end, printed materials, consider getting a sample pack from one of the companies that specializes in really unique printed goods like Print Peppermint. Print Peppermint, and other stores like it, offer real metallic printing on diverse materials, including things like cork and wood. You can get a little carried away with all the options. Maybe that's just me, but I found it to be the fun part of this process.
Step 17: Consider a Giving Presentations to Referral Sources. One of your best marketing tools is simply developing a presentation on a topic and offering it to potential referral sources. Perhaps you excel at stress management. If so, maybe you could check with your local hospital to see if they'd like to learn about how their cardiac patients could learn how to relax. Or maybe you love working with eating disorders. You could consider giving a presentation at your nearest college counseling center. To get started, make a list of the type of clients that you most enjoy working with. Use that list to shape the professional identity that you want to market to others.
Okay, so there are some of the major steps you'll need to set up a private practice. If you have questions, corrections (like a link that no longer works!) or suggestions, just e-mail me a [email protected]. Good luck!