So You are Thinking About Private Practice...Part II

By: Mary Riemersma, Former Executive Director

The Therapist
November/December 2003

Updated in July 2012 by Sara Kashing, J.D., Staff Attorney


Past issues of The Therapist contained articles on forming a private practice. The articles addressed many considerations leading to the decision to form a private practice. Once the pros and cons have been evaluated, and the decision has been made, you will want to be sure that your practice is created in a manner that will be best for you. Over time, The Therapist has featured numerous articles that you should refer to in order to prepare for your private practice.

Some of the articles that you should review include:

Getting Started
Review the "CAMFT Member Practice and Demographic Survey." This overview of the profession will give you a good starting point to position yourself in practice.

For an overview of general information that you will need to know now or later read:

  • "Selecting and Forming the Right Private Practice Entity" to make sure your business entity is the right one for your burgeoning practice;
  • "Patient Intake Questionnaire," for a sample of what to include in an intake;
  • "Informed Consent/Therapist Disclosure," for an overview of points to consider when creating an informed consent/disclosure statement;
  • "Limiting Risk with Arbitration Agreements," if you wish to use alternative dispute resolution should a dispute arise;
  • "Advertising Guidelines for Therapists," to be sure your advertising is in compliance with law, regulation, and ethical standards;
  • and "Collecting from Non-Paying Clients" should you plan to allow balances to accrue.

If you are contemplating taking insurance reimbursement and/or becoming a managed care provider, read or have as a reference "Third Party Reimbursement," "What is Insurance Fraud," "CPT Codes," "Evaluating the Managed Care Contract," and all of the articles, forms and information on "HIPAA."
If you are contemplating having employees, read "Checklist for Therapists Who Become First Time Employers," "Signed Statements Required by Child Abuse Law," "The Do's and Don'ts of Interviewing Interns and Trainees," and "Interns/Trainees: Employees or Independent Contractors."
All of these articles can be accessed by going to the CAMFT website, www.camft.org under the “Resource Center” link.

Basic Issues to Consider

Identification Number
A Social Security number is often used as the identification number for the IRS, insurance companies, and others unless the therapist has an Employer Identification Number (EIN). Many have concerns with violations of privacy due to the use of the Social Security Number. The best way to avoid unnecessary exposure of your Social Security Number (SS#) is to apply for an EIN. Keep in mind that it is not necessary to have employees to get the EIN and this number replaces the need to use your SS# as a means of identification. To apply for an EIN, get IRS form SS-4. The form can be obtained on the website for the IRS or any other place IRS forms are available. The IRS website is www.irs.gov and you will be able to enter the desired form (SS-4) and link directly to the form and the instructions for the form.

Fictitious Business Name
If you want to use a name for your business that does not include your surname or a name that suggests the existence of other owners, you will need to apply to use a "Fictitious Business Name," otherwise known as a "DBA" (doing business as). The filing of this name is to be done not later than forty days from the commencement of business. Regular renewal of the fictitious business name statement is also required. Applications for Fictitious Business Names are usually obtained from the County Clerk and require a form to be completed and a nominal fee to be paid. By going to a search engine such as Google, you can, in some cases, check for prior use of your selected name, and register your chosen name if it is available. Therapists should avoid using any names or words that may give the impression of a practice comprised of greater than one person, when engaged in practice as a sole proprietor. For example, such inappropriate words might be, "Associates," "Clinic," "Center," etc. Keep in mind, as well, that it is a violation of the licensing law for a therapist who conducts a private practice under a fictitious business name to use a name that is false, misleading, or deceptive. Further, such therapists have a duty to inform patients, prior to the commencement of treatment, of the name and license designation(s) for the owner or owners of the practice.

Within thirty days after filing the fictitious business name, the therapist is required to publish the name in a newspaper of general circulation in the county in which the principal place of business is located. Such publication is to be once a week for four consecutive weeks. An affidavit of this publication must be filed with the county clerk within thirty days after publication. A fictitious business name statement generally expires and can be renewed at the end of five years from the date initially filed, unless a statement of abandonment has been filed and published.

Declaration of Business

Business Tax License
Every operator of a business (and therapists are operating businesses) is required to file for a business tax license/Declaration of Business Tax in the city where the business is located, prior to the commencement of business. Generally speaking, a penalty will be imposed if the form is filed late. Even if your practice is located in your home, you are required to file for a business tax license.

Considerations with regard to the Location of Your Practice
The location you choose for your private practice will, in large measure, dictate the clientele you will be able to treat in your practice. Since you can choose any area, do initial research for an area that works for you. Try to locate your practice in an area that is less competitive. Consider whether potential patients in that area can afford to pay for therapy or will they be relying on insurance coverage to pay for your services. If, for example, you want to work with children, be close to one or more schools. If you want to work closely with physicians, locate your office close to where the types of physicians with whom you want to work have their practices. You can also sub-let office space from the existing psychotherapy practitioners, general medical practitioners or pediatricians. Tying in your specialty to their practices could entice them to want you within their offices so they can refer existing patients.

Home Office
The easiest place to initially house your practice is in your home, however, your home may not necessarily be the best choice, or the most economical choice. First of all, zoning and/or covenants, codes & restrictions may prohibit the home office. It does not necessarily cost less when you take into account the space foregone-in fact, it may be cheaper to rent an office part-time than to give up the square footage that would be used in the home for office space. Further, consider that your personal privacy would be jeopardized as patients will know too much about your personal life. Depending upon the clientele, you and your family may be endangered. Patients may feel their confidentiality is breached as they may be seen by your family. Further, you do not have the ability to leave the patient's issues at the "office." Besides, managed care entities, with whom you may wish to contract, often prohibit home offices. Thus, the best choice may not be the home office, on the other hand, you may identify a multitude of good reasons why the home office is the most convenient and workable for you at this time.

Part-Time Office
You may choose to rent or sub-lease from another therapist. These arrangements can be established on an hourly, daily, weekly, or monthly basis. This arrangement, of course, is the most temporary and affords the greatest flexibility. However, that flexibility may also be a detriment. If, for example, the leasing therapist has less available time, your practice may be altered overnight. Further, it may mean that you are moving place to place and your clients may be uncomfortable with the inconsistency. But, for the beginning therapist, this arrangement may work well, at least until the practice has grown to a reasonable size where having one's own office would be practical. It is cost-effective, flexible, avoids a long-term commitment, rarely requires financial statements and tax returns, and the details are easy to navigate. Further, you will not have to invest in furnishings, a phone system, and other accoutrements to make the practice function.

Full Time Office
When you make the decision to rent an office full time, it will require the consideration of many more details. It will likely involve a lease, possibly other contracts, negotiation of those arrangements and greater responsibility and liability on your part. It is sometimes possible to locate a month-to-month arrangement where your commitment is short-term and your need to demonstrate financial stability is minimized. However, the down-side to the month-tomonth arrangement is you could be forced to move with as little as thirty days notice. This abrupt move may be disadvantageous to you as well as your clients.

There are advantages to a longer-term arrangement, such as a lease or rental agreement. However, it does require a long-term commitment and usually requires that you provide substantiation as to your ability to pay for the term of the agreement. A financial report, budget, and business plan are customarily required to provide substantiation as to ability to perform for the term of the lease or rental agreement. However, this requirement would be strengthened or weakened depending upon the tightness of the commercial rental market in your area. Initially, when you may not have much in the way of a financial report, budget, or business plan, it may be helpful to rent or lease space with others where you are able to rely upon the financial integrity of already established professionals. Or, it may be preferable to sublease from another mental health professional who may have already assumed the responsibility for the lease, build-out, and other details and who may not impose as many requirements as the building management.

Key to a successful agreement between the landlord and you as the occupant of the space is "negotiation." Remember that leases, like any other contracts, are negotiable. You should not sign a lease agreement if you are not reasonably comfortable with the terms. Such agreements should be negotiated with the attitude that both sides need to feel like they are winners. Likewise, do not enter into such an agreement without a written contract. Typically, leases run from one to five years. Depending upon market conditions and amount of space you will occupy, you may get "sweeteners" thrown into the arrangement such as free rent, an allocation for design and build-out to fit your needs, running water, cabinetry, etc. However, the tighter the market, and the smaller the space, the fewer concessions you will likely be able to negotiate.

As you conduct your search for space, consider:
What are the hours you will be using the space? What is traffic like during the times your patients will be coming to your office? What will the parking be like during those times? Will the air conditioning, heating and lighting be available for use when you are seeing clients in the evenings and on weekends? Are the restroom facilities sufficient for the building and for your clients? What is the security system or is there adequate on-site security for patients who may be seen after dark? Are you going to be secure departing the premises after dark? Is the space accessible to persons who are disabled?

Typically rents or leases are calculated in cost per square foot. This cost can be on a monthly basis or an annual basis-e.g., $1 per square foot per month or $12 per square foot per year. Some space is rented on a "usable" basis. An example would be that you occupy 200 square feet and you pay for only 200 square feet. In some cases the space is rented on a "rentable" square feet, which means you are paying for the space you occupy and a pro-rata portion of the common area. Common area would include hallways, restrooms, lobby of the building and elevators, for example. These common areas constitute the "core factor" in a building. For example, this core might be eight percent of the building, in which case you will pay an additional amount in rent to cover the eight percent additional space that is not actually occupied by your practice.

When you sign a lease, you may be asked to sign a full-service lease. Such a lease covers all expenses including utilities, housekeeping, etc. Sometimes your utilities will not be included in the lease and will be billed separately. In a "buyer's" rental market, you will likely be able to negotiate some amount of free rent that is enhanced based upon the life of the lease agreement. Sometimes you are able to negotiate tenant improvements to be paid for by the landlord. These improvements might include: office space configuration, separate entry and exit doors, oneway mirror, soundproofing, built-ins, floor coverings, running water, refrigerator, etc. When market conditions are tighter, it may be possible to get the landlord to pay the costs up front and amortize them over the course of the lease. In the worst case, the landlord will demand that these improvements be paid in advance, prior to construction. If the landlord is willing to negotiate tenant improvements, these will typically be priced at a set amount per square foot, such as $18 per square foot. Any expenditure over this amount will be the responsibility of the lessee unless the lessee is able to negotiate otherwise.

It is not uncommon for the long term-lease to escalate over the course of the lease, even though it is controlled by the lease. Passthroughs and cost of living adjustments are common. A pass-through is a circumstance where costs to the landlord increase, such as utilities, maintenance, lawn care, security. The pro-rata percentage of these increases are passed through to the tenants. In such case, even though you may have agreed to a pass-through of expenses, the increase may be controlled by an "expense stop" that you negotiate. For example, you may have negotiated an expense stop of 3 percent. If the pass-through expenses have actually increased by 8 percent, you are only stuck with the 3 percent per your prior negotiation. If you have agreed to cost of living adjustments in your lease, an increase in the consumer price index would cause an increase in your rent, even though you are covered by a lease.

Leases should be read carefully. Objectionable terms should be negotiated to satisfy both lessor and lessee. If you don't understand the lease, seek the consultation of an attorney or some other person who has a good understanding of the terms and conditions of a lease. If the lease cannot be negotiated to satisfy your needs, walk away and find another home for your practice. Keep in mind that it is common for the landlord to require you to name them as an additional insured on your malpractice insurance, so that they have coverage should they be sued for something that occurred on your leased premises. This additional coverage is available for a nominal charge as a part of your malpractice insurance. Sometimes landlords will ask for proof of coverage for general liability. This type of insurance is generally included in a policy that covers fires, thefts, and someone getting hurt on your rented premises. Remember that your malpractice insurance provides for premises liability coverage. You do not need to get a separate policy for this coverage. Premises liability is the situation where a patient walks into your office when it is raining and slips, falls, and gets hurt on the wet floor. The patient then sues you and the landlord. Your malpractice insurance will defend you in such a case, and will defend the landlord if you have named them as an additional insured.

Financing
In some cases you may not have the available cash to begin a private practice. It may be necessary to procure a loan to cover the startup costs of your practice. Other options, if cash is an issue, are bank or credit union loans, home equity loans, refinancing of a home, loans against retirement plans or other investments, etc. A good place to begin is the Small Business Administration.They can assist with locating lenders and connecting you with persons who can help you with a business plan, a budget, and the development of financial statements, necessary ingredients in order to procure a loan.

Furniture and Equipment
To begin your practice, you will likely minimally need the following: desk, chairs and other furnishings and decorator items, book case, computer, printer, software and fax machine. Some computer printers are multipurpose having printing, copying, faxing, and scanning capabilities. While all of these items can be purchased, they may also be rented or leased. Renting or leasing may be an option as you are getting started, allowing greater time and flexibility to select the items you will want long-term. There are many opportunities to buy software that is dedicated for use by therapists. For an overview of entities that offer such software.

Setting and Disclosing Fees
Your fee is one of the first things that must be disclosed to patients. You should establish your normal, reasonable, and customary fee in advance. Once established the fee should not be increased except by the procedure that has been disclosed to the patient in advance, preferably in writing. While you may choose to operate on a sliding scale (you agree to take a reduced fee in lieu of your full fee), your fee should not slide above your normal, reasonable and customary fee. Keep in mind as well that if your full fee is, for example, $100, yet you always slide down to $75, your normal, reasonable, and customary fee is really $75. Sliding should be something you do irregularly and for good reason and your reasoning for sliding should be consistent from patient to patient. For example, you may decide to slide your fee downward as a goodwill gesture when a patient has an inability to pay your full fee. Hopefully you will require some documentation to demonstrate need and the patient's situation fits your pre-established criteria. Or, you may decide to slide your fee downward because you wish to fill certain time slots that are less desirable to patients. Thus you offer times at 8 and 9 a.m. at reduced rates.

We recommend that all policies with regard to fees be communicated in writing. The policy should state your normal and customary fee, should discuss when and how fees may be raised if they are to be raised, discuss your cancellation and notice policy, and how you expect to collect the fee. For example, are all fees to be paid at the time of service with the patient provided a "superbill" and expected to submit his/her own claims to third party payers? Will patients' balances be allowed to accrue and you will bill monthly? Will you submit claims to third party payers? Will you allow patients to pay by credit card? In such case you would be required to have credit card equipment and procedures in place with a bank.

The easiest method, of course, is to not get involved in long term collecting from third party payers (insurance and managed care entities) and to collect from patients prior to or at the time of treatment. In such case, a superbill is typically provided for the patient's records or to submit for reimbursement. Click here for a sample Superbill. If you decide to collect from your patients on a monthly basis, rather than at each session, get in the practice of billing timely, following-up regularly, and collecting when due. In this case you would bill promptly at the end of each month, and payment payment should be received within a reasonable time frame. Accounts not paid on time should have regular follow-up billings where the balances are accrued. It is recommended, however, that these balances not be permitted to accrue unreasonably. Balances too large can create problems for patients and may be the impetus for pursuing disciplinary action or a lawsuit against you when they are placed in positions of being unable to meet their obligations to you. Remember, you are not expected to see patients for free. If a balance is beginning to accrue, and the client does not have the ability to pay, it is time to begin to work on transitioning the client to another professional or entity that can provide low or no fee therapy services.

Risk Management

Malpractice Insurance
While not required by law to engage in private practice, we recommend that every therapist purchase professional liability/malpractice insurance. You may ask how much coverage is the right amount? The quick answer is, as much as you can afford. There is very little difference in cost between the lowest amount and the highest amount of coverage possible. Think of it as well as what are you protecting? You may have significant assets that you wish to preserve and protect. You may engage in more risky kinds of practices, such as some types of touch therapies, in which case, you may benefit from higher limits of coverage. Or, you may work with a high-risk population and may elect a high limit of coverage for your piece of mind. You may choose to push the boundaries, in which case your practice is more at risk and it would be wise to seek a higher level of coverage. If you work in a hospital setting or are a provider with certain HMOs, PPOs, EAPs, etc., they may require you to have a specified level of coverage. If you have employees or provide supervision, you are placed at greater risk of a lawsuit for the actions of those you employ or supervise, thus a higher level of coverage may be desirable. Likewise, if you work in a group setting, whether formal or informal, your vulnerability may be increased, warranting a higher level of coverage.

________________________________________
This article appeared in the November/December 2003 issue of The Therapist, the publication of the California Association of Marriage and Family Therapists, headquartered in San Diego, California. This article is intended to provide guidelines for addressing difficult legal dilemmas. It is not intended to address every situation that could potentially arise, nor is it intended to be a substitute for independent legal advice or consultation. When using such information as a guide, be aware that laws, regulations and technical standards change over time, and thus one should verify and update any references or information contained herein.