October 28, 2022

Start Your Psychiatry Private Practice pt.1: 4 Questions to Ask Yourself Before You Take The Leap

Written by

Alana Bhatla

Here at Osmind, we work with tons of psychiatrists who decide to start their own solo psychiatry private practice.

The reasons to go private are many: Maybe you want to be your own boss, control your schedule, and make extra income. Regardless of the reason, most clinicians who hang a shingle have no regrets.

Still, it’s daunting to figure out out everything it takes to get up and running. That’s why we’re here to share tips and tricks to get you ready to see patients and run your business on a solid foundation.

Here are four vital questions to ask yourself before opening your private psychiatry practice.

1) Do I Want to Open a Private Practice Full-Time vs. Part-Time?

“Burning the ships” and jumping into the deep end of private practice may motivate some, or cause unnecessary stress.

We’ve seen new solo psychiatrists most successful when they keep their day (or night) job to pay the bills while they grow their private practice. In the beginning, a steady income can help you pay upfront expenses, allow you more buffer time to steadily build up a patient base, and slowly cultivate your business.

Starting part time also lets you keep your skills sharp across multiple or specialized populations, and maintain professional relationships. Additionally, you can save by renting office space part-time, such as in the early mornings, evenings, Fridays, or even weekends.

Make sure to check non-compete clauses if you live or work in a state where non-compete clauses are legal. If you work for a hospital system where you’re paneled on insurance, you also need to check with the hospital’s credentialing people or the payer directly to determine if the credentialing is specific to your role at the hospital OR if it applies anywhere you practice in that state.

This becomes a problem with certain payers if you are planning to be private pay only. If you need help understanding the terms of your contract (or better yet, negotiating before you sign!) we recommend working with a healthcare employment attorney.

2) Will I See Patients Virtually, In-Person, or Both?

The answer to this question will depend heavily on your state requirements and the types of patients you will treat.

Modalities: Certain treatments, like TMS, obviously require an office space and a TMS machine.

Legal requirements: Requirements for in-person vs. virtual care vary by state. During the COVID-19 public health emergency, the Drug Enforcement Agency (DEA) allowed psychiatrists to prescribe controlled substances via telehealth without an initial in-person appointment. However, moving forward, we anticipate the Ryan Haight Act that requires an in-person initial appointment will be reinstated. If you plan to accept patients who need controlled substances—make sure you have a plan for seeing them in person at least once.

If you want to prescribe and refill controlled substances, you need to use your office space address to apply for a DEA license. If you plan to practice in multiple states, you would need a separate space and DEA license for each state.

Office expenses: Renting office space can be expensive, so the vast majority of psychiatrists will benefit from a telehealth option, even if they also have an office space. You can always sublease an office part-time or sublease your space out to others part-time if your name is on the lease.

In any case, telehealth offers both you and your patients convenience and flexibility, and can help avoid cancelations and reschedules. An EHR with integrated HIPPA-compliant telehealth makes it easy to add a telehealth option to your appointments.

3) Will I Take Insurance?

We get it—insurance is a hassle. We see most independent psychiatrists open their practices as out-of-network providers to start. There are many reasons for this.

Osmind recently conducted a survey of independent psychiatry practices and found that for practices that don’t take insurance:

  • 88% cited that insurance was too much of an administrative burden
  • 76% said the amount of reimbursement was not enough
  • 71% said they did not want to deal with long billing cycles
  • 47% said getting credentialed is a hassle

Additionally, taking insurance can add costs to your business. You may need to partner with an external revenue cycle management (RCM) company, hire a part-time biller, or allocate more hours for claim submission and denials management rather than patient care.

You may also need a more robust way to track your finances, and track delays in receiving payment and patient follow-up if a claim is denied.

A recent Osmind survey of independent psychiatry practices found that about 36% of independent psychiatrists who take insurance were able to handle billing on their own.

What about expanding access?

Of course, you want treatment to be affordable and accessible for patients! We have a few recommendations for when you get started.

  1. First, use an EHR that generates superbills and submits them on behalf of your patients. A superbill is essentially a receipt that shows ICD-10 and CPT codes that patients can submit to their insurance if they have out of network benefits. This helps your patients maximize their out-of-network reimbursement benefits, and shows patients you’re on their side and want to help them.
  2. Second, some clinicians choose to offer a “sliding scale” or “financial hardship agreements.” Both can offer more affordable care based on patients’ financial need. However, technically a “sliding scale” would apply to everyone in your practice which is usually not the intention. That’s why we’d recommend the use of financial hardship agreements instead; they’re based on objective financial data where you can allocate a certain percentage of your caseload to “hardship spots.”

As your practice matures, many providers decide to accept insurance to build your patient base and provide care to patients who could otherwise not afford care. Be aware that you’ll first need to go through a few administrative steps, including uploading documents to the Council for Affordable Quality Healthcare’s (CAQH)—Universal Provider Database (UPD). Payers use that information as part of a larger credentialing process. In addition, to stay on a panel, you’d need to update your CAQH every several months or risk being removed from the panel.

4) Am I Ready to Finance the Up-Front Costs?

Compared to most medical specialties, psychiatry has some of the lowest start-up costs. Still, you’ll likely have a few thousand dollars of start-up costs—mainly office space deposits and furnishing if you plan to see patients in person.

Before you have a steady practice, you need to invest in malpractice insurance. You should also invest in an electronic health record with a patient-friendly mobile app to lighten your workload and keep patients engaged.

Depending on your business structure, you may need payroll and accounting software, a business owner’s policy or general liability insurance, and workman’s comp insurance. Investing in a lawyer and accountant can help you set a solid foundation. Last but not least, you also need to think about marketing to find new patients, such as having a website and being listed on directories like Psychology Today.

Our next post, Creating a Private Psychiatry Business Plan: Planning for your revenue and costs will go into more detail on creating a budget for a new solo psychiatry practice budget. You’ll learn how to quickly estimate your start-up costs and create a long-term business plan.

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