Private Practice Risk Management
Owning and operating any business exposes you to certain risk. You'll likely want to use some combination of the three risk management strategies I'll discuss in this section to mange these risks. For risks that are insurable, you can transfer the risk to an insurance company. For certain risks you can contain them within the business by forming a business entity. And finally you can reduce your exposure to certain risks by putting certain policies and procedures in place.
Private Practice Risk Management Resources
Click on the orange section headings to expand
Mostly what you need to worry about here is malpractice insurance and professional liability insurance. Always, always, always keep your malpractice insurance at an adequate level and in force. I talk about that more in the business entity section below.
Beyond those two basic policies, there are a whole slew of additional policies you might consider. Often times, it makes more sense to skip these policies. Instead, you'll self-insure these risks and protecting yourself through a combination of business entity & thoughtful policies and procedures.
If you're looking for a comprehensive deep dive of all the different policies you could consider, this episode of Therapy for Your Money is a great resource. I'll be honest, this conversation overwhelmed me a bit. It will certainly give you a very comprehensive view of the different insurance policies you could put in place.
Business entities, such as an LLC or Professional Corporation, are a confusing topic. I've found a fair bit of misleading information out there.
To help cut through the clutter, I put together this blog post (with video!) on Business Entity Basics for Therapists in Private Practice.
And here are a few key points to keep in mind about business entities for therapists.
First you might wonder, what benefits do business entities offer? There are three. First, the shield your personal assets for legal liability (with one major caveat in mentioned below). Second, they offer some income tax flexibility through the S-Corp election. This election is only available to LLC's and Corporations. Third, they create a "container" for your business, which allows you to house intellectual property. This container can also help you keep all the administrative aspects of your business (including financial ones) neat and organized.
A really important exception to the liability applies to licensed mental health professionals. No business entity will ever protect you from personal liability for actions you take as a licensed professional. Whatever actions you take as a licensed mental healthcare practitioner create potential personal liability regardless of business entity. These professional actions likely include supervision of other therapists. That is why carrying adequate malpractice insurance is essential. The courts won't care if you have set up an LLC or Professional Corporation or any other flavor of business entity. They will still hold you personally liable. Please keep that malpractice policy current!
Final point: be sure to check your state's specific legal requirements. Some states require that if you are a licensed professional you must use certain types of business entities. Instead of a "normal" LLC, you would have to form a "Professional LLC." And in California, professionals aren't able to use LLCs at all - the only business entity option is a Professional Corporation. Be sure and stay in compliance with your state's regulations, or you won't be able to reap the full benefits of your business entity.
For more detail and color commentary, be sure on check out my blog & video.
No one likes policies and procedures. If you think they're a drag to follow, try creating them. I've had to do plenty of policy creation for my own financial planning firm. It hasn't been all that fun. AND it's been a really good use of my time. Why? Because I can carefully think things through once. And then I don't need to think about it again. I can just follow the policy (at least until I conduct a periodic review of my policies).
What am I thinking so hard about when I draft those policies and procedures? Well, I'm thinking about the risks to which I'm exposed. Certainly regulatory risk is a big one. There are just certain things I need to do. There are certain boxes I need to check to ensure that the California (and other) regulators are satisfied about the way I run my business. And yes, it can be somewhat of a pain.
But here's the thing about regulation. If you can look past the annoyance to the reason regulation exists in the first place, you'll discover that regulation has a heart of gold. Most regulation has good intentions (even if in practice some of it goes a bit astray). And that intention is to protect consumers from harm.
And I think that's really the heart of any risk management strategy. You're thinking through your policies and procedures to help make sure you don't unintentionally harm anyone. Of course you can't anticipate or control every factor that might lead to injury. But you can have a good think through of the things that could go wrong and then put thoughtful policies and procedures in place.
Viewed through that lens, I think the dreary work of formulating (and following) policy and procedure as an extension of loving kindness to anyone that interacts with me professionally.
I go into the more detail around policy and procedure in the pages on creating a healthy private practice, specifically in the compliance and operations sections. Primarily what you'll want to think about is HIPAA compliance (although there may be other areas to think through, especially if you are seeing clients face-to-face).