GoodTherapy | Business Formation for Therapy Practices

by Connor D. Jackson, JD

Connor D. Jackson is a healthcare attorney based in Chicago who serves independent practices in several states. Visit his firm’s website here.

Business Formation for Therapy Practices

One of the first questions many prospective independent practice owners ask is, “Do I need to establish an LLC or a PLLC before I open?” They also want to know, “Is this something I can do myself? Should I have my trusty accountant set it up for me?”  For a psychotherapist — or any licensed healthcare provider — professional regulations bring even more considerations and constraints.

Let’s discuss those considerations and constraints and talk about how to move forward with a new practice.

Corporate Entities

The first concept to understand is that of a business “entity.”  It’s possible to open a business that is, legally speaking, indistinguishable from you, the owner.  Any expenses or revenues flow to or from you. The business’s debts become your debts. Someone could sue you for the actions you carry out for your practice, such as entering into a contract or taking out a loan. Such a lawsuit would put your personal assets at risk. Legally, this form is called a sole proprietorship. It’s the default structure for any business that doesn’t establish a corporate entity with the state. 

But what if you want to limit your personal liability for the actions or debts of the practice? In this case, creating a corporate entity allows you to separate yourself from the practice and become a “member” or “shareholder.”  Corporate entities give members and shareholders limited liability, which protects personal assets from legal claims against the business in many situations.

When creating a corporate entity, you have the option of two primary structures: a limited liability company (LLC) or a corporation. Corporations are incorporated, and limited liability companies are organized.

Licensed healthcare providers need to be aware of two subtypes of these structures: professional limited liability companies (PLLCs) and professional corporations (PCs). Some states, such as Wisconsin, call professional corporations service corporations (SCs). These companies are organized or incorporated, respectively, to deliver professional services. However, the definition of professional services varies by state. Whether a state mandates that a therapy practice create a PLLC instead of an LLC or a professional corporation instead of a corporation requires a careful reading of that state’s laws and regulations.

Fees and Formalities

For many practice owners, finding the proper structure requires balancing the end goal (liability protections) and the costs in money and effort. The monetary fees, for example, differ for the entity types. But individual states’ fee schedules vary widely, too! An established California LLC, for instance, will pay an annual tax of $800. In contrast, an Illinois LLC will pay an annual report fee of only $75.

Forming a corporate entity also requires creating corporate governance documents, which are legal documents that determine how your entity functions. For example, an LLC should have an operating agreement and a corporation should have bylaws. These documents discuss liability, payment of profits to members or shareholders, and many other factors that have legal consequences and impact your legal rights and obligations. 

Further, to claim the protection of limited liability, you need to maintain corporate formalities. Corporate formalities might include

Typically, small or solo psychotherapy practices find professional limited liability companies more appropriate than corporations because they require fewer corporate formalities. Additionally, the filing fees can be lower than those of corporations. 

An attorney can help you work through the options and understand the best structure for you. You might also launch a practice as a sole proprietorship (sacrificing the liability protections of a corporate entity) and create your entity later, once your practice grows. Just keep in mind that any contracts you enter into as a sole proprietor will not automatically transfer to your corporate entity down the line.

Corporate Entities and Multi-State Practice

When considering the proper corporate structure for a practice, It’s important to remember the rationale for having corporate structures at all. First, the practice owner seeks to separate their personhood from their work. Also, they notify consumers of the entity with which they are doing business or seeking healthcare services. These reasons illustrate how your profession intertwines with your corporate structure.

To operate in multiple states — in person or virtually — you need licenses issued by the appropriate state agencies before you can treat clients in those states. When it comes to telehealth, the client’s location is typically where the care takes place. For example, say that you’re based in Texas and have a Texas license. However, you work with clients who live in Michigan. Thus, you ought to have a Michigan license as well. Failing to do so could invite professional disciplinary action in Michigan as well as Texas. Such activity could also invite claims of misrepresentation or even fraud (depending on your intent). States aim to protect consumers from harmful acts. They do so, in part, by requiring professionals to put consumers on notice of their professional status in its applicable corporate structure.  

Requirements Vary Widely By State

From an organization or incorporation standpoint, requirements for delivering services across state lines vary by state. So if you’re operating a multi-state practice, you need to understand the laws in each state in which you deliver care. 

For instance, in Michigan, a clinical social worker may choose either an LLC or PLLC structure. Meanwhile, Illinois requires licensed clinical social workers to deliver services through PLLCs. Thus, a dual-licensed provider in these states who wanted to enjoy limited liability protection might need two entities to render care in both locales. States may also have specific waivers for delivering care across state lines (e.g., PSYPACT for practicing psychologists). However, these exceptions are few, in our experience. 

Some states, such as New York, require proof of your licensure from the State Department of Education before they will accept your professional entity. In other states, an assertion of the professional purpose of the company suffices. (But if you were to practice a profession outside your scope, this would remain grounds for discipline.)

State laws also vary on which professions can co-operate a single professional entity. For example, what if a licensed clinical social worker wanted to organize a multi-member LLC in New York with a licensed professional counselor?  They would need to research whether the state allows that co-ownership.

And when researching the requirements, keep in mind that each state may not have identical licensure. For example, Texas likely defines a “licensed mental health counselor” differently from New York or California.

Corporate Entity vs. Tax Designation

Many new business owners conflate corporate entity types — the business formation — and tax designations.  You may have heard your accountant discuss the benefits of a particular tax structure, such as an S-corporation or a C-corporation. The tax structure determines how a corporate entity will be taxed. 

Corporate entities are assigned a predetermined taxation method. For instance, a single-member LLC is automatically taxed as a sole proprietorship. As a result, the profits and losses of the LLC are taxed the same way as personal income and losses. However, corporate entities can elect to be taxed in a way that is different from the default taxation method. For example, an LLC that meets specific requirements can elect taxation as an S-Corporation.

Accountants are experts at finding beneficial tax strategies. Meanwhile, attorneys focus on forming corporate entities that meet the rigorous requirements of the state. Healthcare’s strict regulatory environment magnifies the complexity of creating those corporate entities. Thus, a good accountant is a treasure and should serve as a key member of your team of professional advisors. However, accountants seldom have the background and experience to establish a proper healthcare business formation with robust corporate governance documents.

How to Get Started

A healthcare attorney can provide the best guidance on these matters and prepare your business formation with all necessary supporting documents. But perhaps you’re not ready to hire a lawyer or don’t yet have the resources. In this case, contacting the state agency responsible for business entities is a good start. They can direct you to information and answer your basic questions to help you get moving.

This article is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between Jackson LLP Healthcare Attorneys and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

GoodTherapy | Truth in Advertising

by Connor D. Jackson, JD

Connor D. Jackson is a healthcare attorney based in Chicago who serves independent practices in several states. Visit his firm’s website here.

Truth In Advertising: Avoid These Land Mines When Marketing Your Therapy Practice

With the explosion of digital marketing, mental health professionals have more outlets than ever to promote their services. And when trying to drum up new clients, it’s natural to focus on using the medium, message, and imagery to stand out from competitors. 

But federal law and state practice acts don’t favor creativity or persuasiveness in marketing. Instead, they demand accuracy and transparency. We discuss the constraints that you need to understand when creating your public profile.

The Legal Definition of “Advertising”

Under the law, restrictions on advertising and marketing cover a broad scope of activities. Advertising refers to any public communication designed to attract business. Therefore, it includes websites, directories, author/speaker bios, business cards, online map listings, and everyday social media posts. In short, anything that potential clients can use to form an understanding of your services or qualifications falls under this term.

Representing Credentials

The American Counseling Association (ACA) Code of Ethics and American Psychological Association (APA) Ethical Principles prohibit members from directly or implicitly misrepresenting their qualifications. Counselors and psychologists cannot misstate their training, education, accreditation, or association membership status. Trainees and supervisees must disclose their status as such.

Though state practice acts vary in precise terminology, they mirror the ACA’s and APA’s prohibitions against false titles or credentials. It’s never acceptable to fudge your qualifications or imply that you have a degree or professional credential that you lack.

In California, for example, unless you are a Licensed Marriage and Family Therapist (LMFT), you should not advertise you can do “marriage consulting,” nor should you advertise you perform similar services to an LMFT.  Similarly, California mandates that unlicensed associates disclose that they are a supervised entity in all advertisements and not use any degree credentials.   

It’s crucial to stay abreast of your state’s most current terminology. Take Colorado’s nomenclature for unlicensed psychotherapists that are listed in the state’s registry. Until recently, they were called “registered psychotherapists.”  However, to potential clients, the term sounded like full licensure. In response, Colorado recently changed the title to “unlicensed psychotherapist” and sunsetted the older term. 

Washington provides a similar example of shifting terminology. In the early 2000s, Washington legislators created a “registered counselor” category as a catch-all for anyone who had not attained the master’s degree and thousands of clinical hours required for full licensure.

However, in 2008, after a Seattle Times exposé alerted the public to substandard care and sexual misconduct by untrained, poorly vetted Registered Counselors, Washington dropped the category. Today, anyone practicing therapy in Washington without full licensure must represent themselves as unlicensed and may not advertise or operate a “counseling” practice.

On the flip side, understating credentials also creates problems. For example, licensed professionals should never advertise clinical therapy as “coaching” to evade state laws. It doesn’t work — the laws will still apply!

Representing Products and Services

The Federal Trade Commission Act (FTCA) demands all claims be truthful and not misleading. In the context of health advertising, this means the Federal Trade Commission (FTC) will evaluate what express or implied claims are conveyed to consumers and whether reliable scientific evidence supports these claims. 

In evaluating the implied claims, the FTC looks to the “net impression.” The FTC asks, “Based on what the public generally understands the expressions in the advertisement to mean, is the ad truthful?”

The FTC also requires that information be presented clearly to avoid confusion. Thus, the FTC views omissions, such as not disclosing when clients receive payment for testimonials, as misrepresentations. Disclosures and disclaimers must be clear and conspicuous, not buried in the fine print or obscured by technical language that the typical consumer will not understand.

False, deceptive, or misleading claims are not solely the purview of federal law. Many state practice acts prohibit making scientific claims that are not substantiated by reliable, scientific evidence. 

To stay compliant with federal and state laws, 

Using Testimonials

Across all industries, testimonials serve as one of the most powerful, persuasive marketing tools. However, for mental health professionals, they require additional caution.

The American Psychological Association Ethics Code and the National Association of Social Workers Code of Ethics prohibit therapists from soliciting testimonials from current clients or anyone who may be vulnerable to undue influence because of their particular circumstances. The American Counselors Association goes further, prohibiting counselors from soliciting testimonials from former clients.

When a client independently volunteers to submit a testimonial, the therapist should explain all risks and obtain explicit, signed consent before publishing it. Moreover, the therapist must avoid violating the client’s confidentiality in keeping with the HIPAA Privacy Rule and state laws. 

As with all other advertising materials, the testimonial’s content must be truthful, including disclosing any compensation to the client. As the party benefiting from the testimonial, the therapist will likely be responsible for the content. 

The Keys to Compliance

In the end, compliant marketing boils down to four efforts:

  1. Recognize that restrictions on advertising and marketing apply to a wide range of public-facing activities.
  2. Disclose your education, training, license, and practice specialty areas with precision and according to your state’s regulations. Never inflate your credentials, even by suggestion.
  3. Be conservative with claims about what your practice or style of therapy can achieve. Refrain from making statements that you cannot support with reliable data, such as peer-reviewed studies.
  4. Tread cautiously with client testimonials by obtaining consent, protecting privacy, and ensuring that the content paints an honest picture.

Keep in mind that many marketing consultants and copywriters don’t understand the stringent guidelines surrounding healthcare. As a result, they may urge you to ask for testimonials or use language that skirts the truth. It’s also likely that you can find examples of competitors who appear to ignore the guidelines. 

Just remember that it’s your practice at stake. Ultimately, it’s you (and no one else) who bears responsibility for your advertising. With truth and transparency behind you, you’ll likely stay on the right side of the law and build more trust with potential clients. For help staying legal with your advertising, check out our advertising materials review services. 

Registries are an important part of any psychotherapist’s marketing strategy. Being listed on GoodTherapy lends you credibility and makes you easier for potential clients to find. Check out the whole host of perks that come with GoodTherapy membership and join today!

This article is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between Jackson LLP Healthcare Attorneys and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

GoodTherapy | Billing Best Practices: When Should I Bill Clients?

Billing Best Practices: When Should I Bill Clients? 

For therapists, there are few better professional feelings than opening your own practice.  

Not only do you get to determine the communities you serve, the office you work out of, and your own schedule, but you also get a much bigger slice of the revenue your work brings in. 

Having your own business also enables you to figure out exactly how you want to structure your practice, including what kinds of clients to take on, which insurance providers to work with, and what areas of practice to emphasize. 

Yet at the same time, running your own practice also exposes you to a number of significant challenges. Chief among them? Billing. 

In an ideal world, clients would pay you predictably, and you would never have to track down late payments. Unfortunately, it rarely works out that way. Unless you make it a point to prioritize your billing process, you’re bound to run into billing issues sooner or later.  

To answer the question posed in the headline, there’s no rule that says you need to bill clients on any particular cadence. It is, however, important to bill clients consistently — whether that’s weekly, biweekly, monthly, or even quarterly is up to you.  

Before we take a look at some actionable tips you can use to improve your billing processes, let’s first turn our attention to some of the reasons why successful practices prioritize consistent billing experiences. 

Billing Therapy Clients: 5 Reasons Why Consistency Matters 

While the following list is by no means exhaustive, here are some of the more persuasive reasons why you should do everything you can to deliver a consistent billing experience to your clients.

1. You won’t catch your clients off-guard.

Ever get hit by an unexpected bill in the mail? It’s not the most thrilling experience in the world, to say the least. 

As a therapist, your job is to help clients move past traumas and become the best version of themselves. The last thing you want to do is be the source of stress or grief. 

By billing clients consistently, they will know when to expect bills and how much they’ll have to pay. In other words, no surprises — the way it should be.

2. You’ll avoid the appearance of fraud.

If you’re not in the habit of billing clients consistently, you might fall into the trap of billing them whenever you feel like it. For example, maybe you send a client a bill after two sessions, then after five sessions, then after three sessions. 

With no rhyme or reason to your billing practices, you might raise red flags for credit card companies — or even your clients themselves!  

In most other areas of our lives — whether it’s insurance payments, rent or mortgage expenses, or utility bills — we’re billed once a month, like clockwork. By sticking to a predictable billing cycle, you can avoid the appearance of fraudulent accounting behaviors.

3. You’ll never leave a big pile of invoices on your desk.

As every small business owner knows too well, invoicing can be quite the bittersweet activity. On one hand, you’re getting paid for your work, which is exciting. On the other, if you put the task off long enough, you’ll have to deal with a mountain of paperwork (or tons of emails if you bill electronically), which is probably not on your list of favorite things. 

By building a consistent, repeatable billing system, you can make the process as efficient as possible.

4. You won’t work for free.

The longer you put billing off, the higher the chances you’ll miss charging for  a session or two, and maybe even more.  

While you went into your line of work to help people, you knew this  would also be your job, and you didn’t sign up to work for free. Consistent billing processes significantly reduce the likelihood you’ll forget to bill a client for a session.

5. You’ll have a steady income stream.

Cash flow issues are one of the main reasons small businesses fail, and therapy practices are no exception. After all, you need money to pay your utilities, office expenses, taxes, and any wage expenses you might have. 

Unless you are sitting on a massive pile of cash, you need to bill your clients consistently to avoid cash flow gaps. Generally speaking, the faster you send out invoices, the sooner you’ll get paid.  

By billing at regular intervals, you benefit from a predictable cash flow. This makes it much easier to help your clients to the best of your abilities — instead of worrying about how you’re going to pay next month’s energy bill, for example. 

Now that you have a better idea about why billing clients consistently is the right thing to do, let’s take a look at some of the specific steps you can take to get your billing function in a better place.  

4 Steps to Take Now to Transform Your Practice’s Billing Processes 

Ready to take your practice’s billing process to the next level? Here are four simple steps to make that happen.

1. Change the way you think about billing.

First things first: You need to treat billing as the most critical part of your business, because it is. If your clients don’t pay you promptly, it’s going to be that much harder to fulfill the mission of your practice: helping clients live their best lives. 

If billing’s been an afterthought to date, it’s time to change your mindset and treat it with the importance it deserves.

2. Communicate transparently.

Before you take on a client, it is imperative that they know exactly how much you are charging, whether their insurance covers it, and how much they can expect to be billed for each session.  By outlining your billing processes as early as you can, you reduce the chances there will be any confusion when it comes time to settle the account. 

For the best results, be responsive to client concerns and answer any questions they might have. If you’re planning to raise your fees at any point, communicate those increases well ahead of time.

3. Invest in your billing function.

There’s no rule that says you have to run your billing department yourself just because you own your own practice.  

As your business begins to scale, consider making smart investments in billing to lessen your load. For example, you might decide to hire an accountant, invest in billing software, or even bring in new in-house staff to take care of billing. 

When you don’t have to manage billing yourself, you can bring a clearer mind to each session — and achieve better client outcomes because of it.

4. Set automatic reminders.

You might decide that you like handling billing on your own, and that’s perfectly okay. If you continue with this setup, be sure to set automatic reminders that will let you know that it’s time to send out invoices. 

By doing so, you won’t have to worry about forgetting to bill your clients on time, which improves the client experience while strengthening your cash situation. 

Ready to Upgrade Your Billing Function? 

As a therapist, you went into business to help clients live more rewarding lives — not to crunch numbers and stare at spreadsheets. 

If you’re struggling with billing, look into a practice management solution like Therapy Partner, which gives you all the tools you need to manage your schedule, document each session, and bill your clients with ease.  

For more information on how Therapy Partner can transform your approach to billing and ultimately help your practice get to the next level, check this out. 

Two professionals talking during clinical supervisionClinical supervision can offer a myriad of benefits, including professional growth in the realms of clinical skills, listening skills, ongoing verbal feedback, and keeping track of agreed upon goals between you and your supervisor. It also assists with ensuring client welfare, serving a gatekeeping function in the provision of clinical services to the larger community and the public (Bernard & Goodyear, 2009).

From a diversity perspective, the American Psychological Association states that competencies in supervision include working with different worldviews and backgrounds of the supervisee, supervisor, and clients on an ongoing basis. While I discuss the potential benefits of clinical supervision, I would be doing this article a disservice if I did not acknowledge the inherent power differential and hierarchical nature of supervision, wherein supervisors may have more room to acknowledge the nature of such a relationship when delivering feedback (APA, 2014).

So what does all of this mean when selecting your supervisor and making the most out of supervision?

Benefits of Clinical Supervision: Acknowledging Diverse Identities

I had the fortune to interact with supervisors who were sensitive to the power differential in the supervisory relationship and who also had the expertise to delve into different aspects of intersecting identities, values, and the collectivistic worldview that I carry as a woman, woman of color, and woman from a collectivist culture. I am fortunate that the first few supervision sessions with some of my supervisors focused on the sociocultural identity wheel exercise that highlighted my cultural preferences, values, and the ways they intersect with my communication style, theoretical orientation, and approaches as a clinician.

I also carry shifting identities that come from the ongoing process of acculturation⁠—adapting values and preferences from multiple cultures depending on the context in which I interact. I am fortunate that the first few supervision sessions with some of my supervisors focused on the sociocultural identity wheel exercise that highlighted my cultural preferences, values, and the ways they intersect with my communication style, theoretical orientation, and approaches as a clinician.

I was able to integrate my cultural self into my clinical approaches when working with clients. More importantly, I was culturally aware and informed as a clinician. This also increased my self-awareness of what kinds of professional resources and support I was looking for, be it conferences, workshops, training opportunities, or ongoing mentorship.

Addressing the Challenges of Clinical Supervision

I can also reflect on some challenging aspects of clinical supervision. I had a few supervisors who identified as feminists and emphasized a concrete and specific structure for supervision. I have learned a great deal from the measurable and tangible aspects of supervision, but it came at the expense of my cultural self and the part of my identity that preferred an added layer of process to supervision.

I picked a supervisor whose style was concrete and specific without any cultural context. This was a very challenging experience for me because culture is critical to my identity, and my supervisor was unintentionally unaware of the cultural differences inherent in our supervision sessions. It was also one of my most valuable learning experiences in supervision. Looking back, it was a mismatch between supervisor and supervisee, and the challenge came from not openly acknowledging and learning from our differences.

For Supervisees: Tips for Successful Clinical Supervision

Lavanya Devdas, PhD, MSW
Lavanya Devdas, PhD, MSW

Now that I have reflected on the positive and challenging experiences of supervision, here is what works for me. In sharing what works, my hope is that you are able to try some of these ideas based on your own work style and values.

The above is a bird’s eye view of what to look for in supervision and of how important it can be to reflect on what each experience has taught you. It has certainly taught me, in terms of increased awareness, about my own preferences for supervision, as well as increased my knowledge of my own style as a supervisor. It’s taught me about my blind spots and the skillset of balancing exploration and process with strategies and concrete resources as a supervisor. Improving skills in the field of supervision while building awareness and knowledge is certainly a lifelong process for me.

To find a qualified clinical supervision in your area or online, start here.

References:

  1. American Psychological Association (2014). APA guidelines for clinical supervision in health service psychology. Retrieved from https://www.apa.org/about/policy/guidelines-supervision.pdf
  2. Bernard, J. M., & Goodyear, R. K. (2009). Fundamentals of clinical supervision (4th ed.). Upper Saddle River, NJ: Pearson Education.
Important Notice

GoodTherapy is not intended to be a substitute for professional advice, diagnosis, medical treatment, or therapy. Always seek the advice of your physician or qualified mental health provider with any questions you may have regarding any mental health symptom or medical condition. Never disregard professional psychological or medical advice nor delay in seeking professional advice or treatment because of something you have read on GoodTherapy.