Practitioners of the healing arts go to school to heal or to ameliorate human suffering. Health care practitioners come into the real world in varying stages of preparedness to undertake the business of running a successful health care practice. This brief article is designed to give you a simple overview of basic business concepts.
Here are some basic business start- up requirements:
1. Prepare a simple business plan
2. Select an appropriate business structure
3. Understand regulatory requirements and complete the necessary tax and business licenses and registrations
4. Establish a business bank account and banking relationship
5. Select an insurance broker for business and professional insurance
6. Check zoning and demographics of your target practice location
7. Develop a marketing plan that meets regulatory standards
8. Obtain office space
9. Create business materials
10. Adopt standards for medical records and other documents
11. Establish billing and health care coding procedures
12. Find an attorney and then an accountant.
1. Business Plan
The purpose of a business plan is to establish the goals of the business, the range of services and products being performed or sold, marketing goals, staffing needs, operational plans (procedures for billing, records, etc.), competition, and business funding. While it may seem unnecessary to develop a business plan for a small health care clinic, the mere exercise of preparing a business plan will help you find potential problems or tasks that you missed. The process is in many ways, more important than the finished product. There are many business plan software programs that will help you with this process.
2. Selection of Appropriate Business Entity Model
Generally, health care practitioners can take advantage of four business models – sole proprietorship, general partnership, professional services corporation (PS) and professional limited liability company (PLLC). Obviously only one owner exists in the sole proprietorship. By default, an unincorporated practice with multiple owners is considered a general partnership. Please note the difference between a “limited partnership” and “limited liability company”. A limited partnership is not feasible for a health care practice because the advantages of being a limited partner (e.g. limited personal liability) are lost when the limited partner becomes involved in the business. A participating practitioner could not, accordingly, be a limited partner. By comparison, a PLLC while taxed as a partnership (except when there is a single owner) has similar attributes to a professional services corporation.
Corporations are a product of state law. A distinction must be drawn between a regular corporation and a professional services corporation. Contrary to what many accountants and some attorneys believe, health care practitioners cannot incorporate as regular corporations, they must incorporate as either a professional services corporation or professional limited liability company.
|Characteristics||Professional Ltd. Liability Company||Professional Services Corporation||General Partnership||Sole Proprietorship|
|Duration||Typically limited in time for tax qualification purposes||Perpetual||Dissolves with death of partner or bankruptcy or agreement||Depends on sole proprietor|
|Formation||File with Secretary of State-Corporations Division for charter||File with Secretary of State-Corporations Division for charter||Agreement of partners – no state permission||No charter or permission required from state|
|Operations||Members or manager operate the PLLC – less formal operation than P.S. corporation||Board of Directors, officers, with annual meetings and need to report annually||Few legal requirements||Few legal requirements|
|Management||Control is vested in members or in manager appointed by members||Shareholders own corporation, but Board of Directors operates corporation and delegates to officers and employees||Each partner has an equal voice and vote, although generally one partner is selected to take charge||Full control of management and enterprise|
|Liability||Absent fraud or personal guarantees, members do not have liability for debts||Absent fraud or personal guarantees, Shareholders are typically not personally liable for debts||Unlimited liability||Unlimited liability|
|Taxation||PLLC is treated as partnership for tax purposes, unless it is single owner PLLC in which case the PLLC is disregarded for tax purposes||Absent Subchapter S election, corporation is taxed as separate entity||Each partner pays tax on partnership share of income, and can deduct against other income like a sole proprietor||No separate entity, all tax liability falls on sole proprietor|
|Tax Reporting||Schedule C||Form 1120 or 1120S||Partnership Tax Return||Schedule C|
|Income/LossPass Through?||Yes||Absent Subchapter S election, no pass through and deductions cannot pass to shareholders||Yes||Yes|
|Double Taxation||No||Yes, unless Subchapter S election is taken||No||No|
|Limitation on ownership||Must be licensed health care practitioner. PTs and OT cannot join in other multi-discipline PLLC. Loss of license results in expulsion from PLLC. Cannot hire employees with other license unless within scope of practice of at least one member.||Must be licensed health care practitioner. PT and OT cannot join in other multi-discipline PS corporation. Loss of license results in expulsion from PS corporationCannot hire employees with other license unless within scope of practice of at least one shareholder.||Must be licensed health care practitioner, but no seeming limitation of multi-discipline practices.||Must be licensed health care practitioner. Cannot hire employees with skills outside scope of practice|
|Cost of Creation||Filing fees with the state, and cost of preparing documents||Filing fees with state, and cost of preparing documents||No filing fees, but cost of preparing general partnership agreement||No filing fees, no organization documents|
|Multi-discipline ownership||All licensees except PT and OT||All licensees except PT and OT||All licensees with no exclusions||Not unless owner has broad enough scope of practice to perform all healing disciplines|
3. Regulatory Environment
As a business in the State of Washington, there are numerous city or county, state and federal agencies with which you must register. All of these agencies have internet sites that provide information and necessary forms. Below are samples of what you can expect:
- Internal Revenue Service You will need to acquire IRS Form SS-4 so you can make application for your Federal Employer ID Number (Income tax, FICA, Withholding & FUTA). You are responsible for completing and filing this form. If you choose to become a Subchapter S corporation, then you need to obtain, complete and file IRS Form 2553 within 75 days of starting business or incorporation. In Washington, a community property state, both husband and wife must to sign the election form.
- Wash. Dept. of Revenue A Master Business Application (MBA) must be completed and submitted to the State of Washington to obtain a Uniform Business Identification number (UBI). DO NOT file the MBA if you are incorporating a PS or PLLC, because the UBI will be provided with the return copy of your filed Articles of Incorporation or Certificate of PLLC. If you file both at the same time, the State will assign a second UBI number and you will spend considerable time sorting out the confusion. Once registered, the state will then send you information on state taxes, including excise and Business and Occupation taxes.
- Wash. Dept. Labor & Industries (DOLI) Filing the MBA will satisfy the filing with DOLI. State industrial insurance covers employees who are injured on the job. The cost is a percentage of their monthly gross salary. Owners or corporate officers may also have coverage or can opt out. You must make the election to cover owners or corporate officers and notify them (even notifying yourself in writing) if they are not covered.
- Wash. Dept. Employment Security (WDES) Filing the MBA will handle registration with WDES. If you have employees they must be covered by unemployment insurance. For corporate officers this coverage is optional. The charge to you for this increased coverage varies.
- Business Licenses Filing the MBA does NOT satisfy city or country business license requirements. Some cities and counties vary on the requirement for business licenses and subsequent payment of city B & O tax. You must contact your city licensing agency.
- Professional Licenses As a licensed health care professional, you are solely responsible for procuring your own license from the appropriate agency.
- Participation Agreements Certain health care organizations, health plans, the state Department of Social and Health Services and Department of Labor & Industries require independent approval or credentialing of your participation in their health care program. Please make sure that you can transfer these participation credentials [e.g. PPO, MCO, CMS and DOLI practitioner contracts or numbers] to your new corporation, or alert those who reimburse you for care to issue checks to the new organization.
- Zoning Cities and counties have zoning restrictions upon businesses locations in residential areas. Normally, there are exceptions allowed for “paper” businesses in which the residence is merely a mail stop or records storage location. Know your local requirements before you establish a practice open to the public.
4. Bank Accounts
Having a good working relationship with your banker is critical as your business grows and your credit needs expand. Do not operate your business out of your personal account. In the beginning, open up a business account, use a check ledger and business checks. If you are going to use any billing and accounting software, purchase the type of checks you can use with a printer. You should also apply for a merchant account so you can accept credit cards.
5. Business and professional insurance
You will need errors and omissions coverage for any professional liability arising from the operation of your clinic, and from treating patients. In addition, you will need premises insurance to cover yourself if someone is injured while in the clinic, or on your premises. If you are subleasing, insure your landlord has such insurance and that you are also covered. Otherwise, you need to get your own insurance. You will also need to get coverage for fire or casualty loss of any equipment, furniture or fixtures/tenant improvements.
6. Zoning and demographics of your target location
If you are locating your clinic in an existing shopping center, or office complex, zoning will not be a problem. However, if you are locating your clinic in your home or residential neighborhood, it will be a potential problem. Zoning varies widely from municipality to municipality. Most residential zoning will not allow a commercial or clinic operation because of anticipated traffic, noise and heavier use issues. Check with the local zoning authority (city or county) before committing to a lease or investing in improvements.
7. Marketing plan
You should develop a marketing plan to ensure a successful practice. A marketing plan is part of a business plan, and in its simplest form reviews your local competition, customer base (i.e., patients), and communication strategy. The plan incorporates goals and objectives along with a realistic implementation timeline and budget.
8. Acquisition of office space
Generally, if you are opening your own clinic independently, you will be signing a commercial lease. If you are sharing space, you will be signing a sublease or office sharing agreement. Commercial leases are not similar to residential leases and can commit you for many months or years. If you breach a commercial lease, you can be held responsible for thousands of dollars of unpaid rent in the future. Have any lease reviewed by your attorney.
9. Create business materials
To market your practice, you will need marketing material. At a minimum this includes a quality business card and a brochure describing your services.
10. Patient Documentation
The best advice for documentation is that “more is better”. Depending on the nature of your practice, you should use electronic medical records software. If you are starting simple, or have little need for extensive documentation, we recommend you still use the SOAP (subjective, objective, assessment, and plan) format for your documentation. You will need to document sufficiently to demonstrate medical necessity for each health care service provided for the patient and to document the nature of the procedure and its outcome. Remember to pay attention to “timed codes” and mark the actual time spent in your chart notes. Initial or sign your chart notes. If you are on a panel of providers with a third party payer, pay attention to their documentation requirements. Third party payer requirements vary enormously. Do what is medically necessary; document what you do; and bill only what you document.
11. Billing & Coding
The typical massage clinic uses few codes, so coding should be relatively simple. As you seek payment for your services, remember to stay within your “scope of practice” when choosing health care procedure codes for billing purposes. If you are a multi-disciplinary clinic, your coding and billing will be more complicated. As billing becomes more complicated, you need resources to insure proper coding. Obtain a copy of the ICD-9 and CPT manuals published by the American Medical Association
12. Regulatory Compliance
When you are practicing in a healthcare services environment, you are engaged in a heavily regulated profession. You not only have licensing regulations, but regulations governing almost every aspect of your practice, your patients and your business operations. Become familiar with such regulations before you inadvertently cross the line. Ignorance is not a defense.
13. Hire an Attorney
If you need legal assistance, contact a qualified healthcare attorney. Healthcare practitioners inhabit a highly regulated environment, and a general practitioner may not realize potential hazards. At Peick|Boyer, we provide state-wide services in healthcare business and operations, entity formation, professional discipline defense, insurance audit defense, healthcare regulatory compliance. For your patients with inflicted injuries, we provide comprehensive plaintiff personal injury services. Contact us at the Peick|Boyer law firm if you have any questions or need assistance navigating the maze of complex health care regulations. Our website is www.peicklaw.com and our main phone is 425-462-0660 or for out of area callers, 1-866-899-2563.