How to fill out a CMS-1500 billing form for CHAMPVA claims
Wondering about private practice overhead costs?
As therapists and clinicians, we work to heal others because we love people.
However, we also run our businesses to see a return on our investment and earn a living.
Owning a private practice is a beautiful marriage of the two concepts.
While telehealth and teletherapy may have made it seem easier and more financially feasible to start a private practice or expand into a group practice, is it really as simple as we might think?
I wish I could say it was, but the honest answer for most practitioners is it’s not that easy at all.
Unless you happen to have a natural entrepreneurial spirit, business-oriented mind, and love a good challenge, private practice may come as a challenge to you.
Of course, that doesn’t mean you shouldn’t open a private practice.
It’s definitely doable—you’ll simply want to prepare for as many challenges as possible before you actually face them.
In my experience, one of the first things that can leave new private practice owners feeling like they’re drowning is the actual cost of owning a private practice. Private practice overhead costs for clinicians are the expenses your practice incurs regardless of how many clients you see, such as software, insurance, rent, and professional services.
How much does it cost to run a private practice?
At first glance it seems like it can’t be that bad.
You’ll need some basics like practice management software, liability insurance, and a HIPAA-compliant email service.
However, especially if you are being cost-efficient by running a fully virtual telehealth practice and skipping the expenses of having a physical office, there can’t be that much more, right?
Wrong!
There are many more surprising expenses when running this type of business.
Therefore, if you are considering starting a solo practice or expanding your solo practice into a group practice, it’s essential you are aware of the full breadth of costs (both money and time) that go into running a practice.
Otherwise, you risk investing resources and not seeing a return on your investment.
In this article I’ll highlight the majority of products and services needed to run a successful practice, and share the expense level each involves, along with how frequently you’ll need to pay for the expense. Because exact dollar amounts will vary based on where you are and when you read this, I’ll use dollar signs to represent general numeric value so you get a general idea of the expense level.
Treat these private practice overhead costs as a starting point, then build your own numbers with our free private practice budget template or the start a private practice checklist.
Which professional services will you need?
Professional services are a major category of private practice overhead costs for clinicians, so decide early which ones to outsource. Though many private practices start out doing all the jobs themselves, it sometimes makes more sense to spend the money to outsource certain tasks, rather than take the time needed to do all those tasks yourself. Plus, certain professional service providers will have expert knowledge that you might not, saving yourself the headache and expense of a data breach or liability concern later.
Healthcare business attorney
Frequency: Monthly initially, then as needed on an ongoing basis
Cost level: $$$$, reducing to $$$ over time
Though this may seem extreme, having a healthcare business attorney can save you a lot down the road. Not only could your business be at stake, but your license and professional reputation as well. And, if you have therapists working for you in a group, their livelihoods and reputations are also dependent on you and the success of your practice.
Hourly rates vary by region and experience, so ask for a fee estimate before you hire.
After the first few months, hopefully, you won’t need your attorney as often and then only on occasion in the future, so this won’t be a permanent monthly expense.
It’s worth noting that it can be quite difficult and time-consuming to find an attorney who specializes in healthcare business AND is a good fit on a personal level—but it’s definitely worth investing your time here, especially when you’re just starting out and have the most questions.
Security and HIPAA-compliance consulting firm
Frequency: Usually contracted for a year, can be continued
Cost level: $$$$
I don’t know many people who enjoy reading government websites to sift through what you do and don’t need to know when it comes to HIPAA, protected health information (PHI), privacy rules, and other security concerns.
If that’s not how you want to spend your time, it can be a wise use of money to hire expert consultants.
This is another area, like attorneys, where having expert knowledge can cost you some money upfront, but can also save you a lot of money and time by preventing potential security breaches.
Two requirements show where a consultant earns their fee. The HIPAA Security Rule requires covered entities to conduct a risk analysis of the electronic PHI they create, receive, maintain, or transmit. HIPAA also requires a business associate agreement (BAA) with vendors that handle PHI on your behalf, including cloud providers and electronic health record (EHR) vendors.
Accounting firm
Frequency: Monthly
Cost level: $$$
I wish I had hired my accounting firm much sooner. I wasted so much time researching and learning what was needed when I could have been spending that time doing something much more meaningful to me, like working with my clients to improve their lives.
There’s so much that goes into business accounting and taxes that it’s yet another area where spending money upfront can save you more in the long run. For a deeper look at the money side of practice ownership, see our guide to private practice financial planning.
Billing service
Frequency: Monthly
Cost level: $$
You could spend the countless hours it takes to properly learn billing (and how not to inadvertently commit insurance fraud).
With the growth of my group practice, I'm just now considering hiring an in-house biller, since a contracted service wouldn't make sense financially for the size of my practice. When I began my solo practice, I chose to learn billing myself. I wouldn't change a thing, because I've since been able to teach my clinicians and practice manager how to bill effectively and legally. I've also seen practices close and clinicians lose their jobs because the practice repeatedly submitted fraudulent claims, sometimes at the owner's direction.
If you choose the DIY route, take advantage of the next item on the list. Our guide to behavioral health CPT codes is a good place to start.
Billing and insurance consultant/educator
Frequency: One-time, potentially ongoing
Cost level: $$
Honest mistakes aren't automatically fraud, but ignorance isn't a safe harbor either. Under the federal False Claims Act, a person acts "knowingly" when they have actual knowledge or act with deliberate ignorance or reckless disregard for whether a claim is accurate, and the law requires no proof of specific intent to defraud. The Act covers claims for payment to the federal government and to some recipients of federal funds, which includes federal health programs such as Medicare and Medicaid.
We're all responsible for knowing the law and following it, and many clinical training programs include very little education on business ownership. This education protects you from costly mistakes, and it helps you explain insurance to clients in easy-to-understand terms. In my experience, many clinicians don't have this basic understanding, which makes business more confusing for them and means they aren't providing the level of service their clients want.
Payroll company
Frequency: Monthly
Cost level: $$$ for a group practice
A payroll company may make more sense if you own a group practice than if it’s just you operating and running your business. That said, depending on the kind of entity you chose to set up as (an LLC or otherwise), it could be beneficial regardless.
Which IT and business services cost money?
Technology is another place where private practice overhead costs for clinicians add up. Whether you run a virtual practice or still see clients in person, you'll have IT needs to run your practice efficiently.
Internet service
Frequency: Monthly
Cost level: $$$
I’m talking about gaming-level internet speed here. If your private practice offers telehealth, you may need a higher internet speed, and although it costs more, it pays off in the quality of care you’re providing. The last thing you want is to be in the middle of an intense session and have your connection cut out, leaving your client without a resolution.
Helpful hint: If you have the option, fiber-optic is usually better quality.
Website domain name and server, website host, and website builder
Frequency: Monthly or yearly
Cost level: $$$
When I say website host and builder, I don’t actually mean a person who hosts and builds the website. I’m talking about an online service provider that you pay monthly or yearly for, which allows you to then build the website yourself. If you want to pay someone to build and maintain the website for you, go ahead and add another one or two $$.
Website design service
Frequency: One-time, potentially ongoing
Cost level: $$$$ initially, $$$ monthly for ongoing service
If you’re not the visually-creative type or don’t feel comfortable designing your own website, then this may be an essential service for you. This can be a pretty hefty up-front cost, and if you need help maintaining and updating the site as needed, the costs may continue, albeit not quite as high.
It’s important to keep in mind here that your website is usually the first interaction your client has with you. It sets the tone for your entire practice. It can either give an impression of professionalism and friendliness, or it can make you seem distant or out of touch. You might be exactly the right fit for a potential client, but if your website doesn’t effectively communicate that, you both might miss out.
Practice management software
Frequency: Monthly
Cost level: $+, depending on practice size
I honestly don’t know how anyone could run a therapy business without this. My group practice software is the cornerstone of my business. In addition to storing and protecting our clients’ medical records, it allows us to manage our schedules and availability, handle all direct patient billing and insurance claims, securely message with patients, run numerous reports including ones necessary for payroll, and enables new and established clients to schedule appointments from the convenience of their own device. And honestly, this is just scratching the surface of everything I use my practice management software for.
Secure, HIPAA-compliant email, fax, and phone services
Frequency: Monthly
Cost level: $+, depending on practice size
Secure communication is an essential component to running a private practice, but it doesn’t come free! My practice has separate service providers to handle each of these methods of communication, but sometimes you can find providers that combine these services. You can also streamline your services (and associated costs) if you only communicate via email, for example.
Digital graphics and social media apps such as Adobe Creative Suite, Canva, etc.
Frequency: Monthly
Cost level: $$
These kinds of services may not be totally necessary, depending on the kind of marketing you do, if you outsource any of it, and how visually complicated your materials are. If you rely heavily on social media to market your practice and engage with your community, engaging visuals are a must-have, and these services can make a huge difference.
What other essentials should you budget for?
This final category of private practice overhead costs is unique to running a practice, and everything in it is foundational to running and advertising your business.
Professional and general liability insurance
Frequency: Yearly
Cost level: $+, depending on practice size
When I was in solo practice, I was quite pleased at how liability insurance didn’t seem to cost me an arm and a leg. But as I grew into a larger group practice, I learned that this expense can increase drastically. If you’re considering adding clinicians to your practice, check how much your liability insurance might increase, and make sure you factor that into your budget.
Licensure, continuing education, and association dues
Frequency: Yearly
Cost level: $$
License renewals, continuing education (CE), and professional association dues recur on a regular cycle, and supervision or consultation groups add to the total. Track them as overhead from the start so they don't surprise you at renewal time.
Job postings and background checks
Frequency: As needed
Cost level: $$$
If you’re in solo practice and plan to stay that way, this is a cost that might not ever apply to you.
However, if you plan to expand into a group, or want to explore hiring a biller, scheduler, or other administrative support, then it might come up.
Between posting jobs, running background checks, and other expenses associated with hiring more people, make sure you budget a large enough amount before signing any offer letters.
Helpful hint: Take advantage of free options for posting job openings first. This will help you nail down what works and what doesn’t work before spending money on job posting sites.
Office expenses such as rent, utilities, and supplies
Frequency: Monthly
Cost level: $$$$
In my solo practice, I saved a lot of money by seeing my clients from my home rather than renting an office—but that’s not an option for everyone, and it’s also not legal in every state to do so.
If you see clients in person, regardless of if you have a solo or group practice, the costs associated with your office space (like rent, utilities, and office supplies) can add up, and will likely be a permanent line in your budget.
That’s not to say you shouldn’t rent office space, but that you should make sure you’ve allocated enough budget before signing the lease.
Which expenses are worth the cost?
Every dollar of overhead comes out of your private practice profit margin, so it helps to know which expenses earn their keep.
Now that you’ve reviewed this list of potential expenses, you may be thinking “I can handle a lot of my own admin work to try to save money.”
My response to that would be yes, you could—if in addition to having the mind of a counselor, you also have the mind of a biller, accountant, lawyer, HR rep, IT person . . . you get the idea.
Some people do have the minds of all these people. I did—at first.
Eventually, I got tired of working every single day, staying awake until the wee hours of the morning to finish up my administrative work.
I wanted to have more balance in my life, which meant I needed to hire more support to help run my business. That meant a greater financial investment, but it also helped me reduce the amount of time I was investing in my business.
If you only take one thing from this article, I hope it’s that you calculate and consider how much your time is worth.
Determine your maximum potential income for one hour of work (whether that be a 60-minute session, an intake, consulting, marketing, etc) and use that as your gauge of whether or not it’s worth outsourcing to someone else.
Let's assume your income is currently $200 an hour. If you're considering hiring an accountant who charges $800 a month, and it typically takes you six hours to do your practice's accounting each month, that's $1,200 of your time. Paying $800 to get those hours back saves you $400 a month.
That math won't make every expense worth it, but it's a useful gut check before you take on another task yourself. If the hours you'd get back are worth more than the cost, outsourcing pays for itself.
Sources
Legal Information Institute. (n.d.). 31 U.S. Code § 3729: False claims. Cornell Law School.
U.S. Department of Health and Human Services. (n.d.). Business associates.
U.S. Department of Health and Human Services. (n.d.). Guidance on risk analysis.
How SimplePractice streamlines running your practice
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If you’ve been considering switching to an EHR system, SimplePractice empowers you to streamline appointment bookings, reminders, and rescheduling and simplify the billing and coding process—so you get more time for the things that matter most to you.
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