Starting a nurse practitioner clinic: Legal considerations

Authosr(s): Laura Fryan, JD, and Joseph Bucaro, JD

Partner with business experts to ensure success.

Takeaways:

  • As states continue to roll back barriers for nurse practitioners to practice independently, NPs can play a vital role in meeting the healthcare needs of every community.
  • A successful clinic requires partnering with experts in law, accounting, billing, and insurance.

To meet patient care needs, nurse practitioners (NPs) are essential to healthcare delivery, and clinics run by NPs are popping up in states that allow NPs to practice with or without a physician on site. In April 2019, the Association of American Medical Colleges projected a shortage of over 122,000 physicians in both primary and specialty care by 2032. As states continue to roll back barriers for NPs to practice independently, NPs can play a vital role in meeting the healthcare needs of every community.

If you want to start an NP clinic, you’ll need to consider several factors, including financing, community need, location, staffing, and marketing, but this article will focus on the basic legal nuts and bolts of an NP clinic.

Choose a business structure

Start by selecting the right business structure for your clinic and register it in your state. (See Business structure options.) Speak with an attorney to determine which entity is right for your clinic, and check with the secretary of state or other appropriate state division for more information and to learn if you can file the paperwork online.

Business structure options

The business structure you choose for your nurse practitioner clinic will determine how much you pay in taxes, your personal liability responsibility, and what type of stakeholders or investors can participate in your business.

Sole proprietorship or partnership

A sole proprietorship is an individual doing business as him- or herself. Because it isn’t a separate business entity, your personal assets and liabilities aren’t separate from those of the business. This is simply you doing business as yourself without any formal structure.

A partnership is formed by two or more people, and it’s typically recognized by the state as a formal business entity. Depending on the type of partnership formed, the partners may have personal liability similar to that of a sole proprietorship.

Because of the personal liability involved with both of these business structures, they’re generally not recommended for a medical clinic.

Limited liability company or corporation

A corporation has shareholders, shares of stock, and governing documents (such as a code of regulations and a close corporation agreement in some states) to govern the relationship between shareholders.

A limited liability company has members (shareholders), membership units (shares), and governing documents (such as an operating agreement and bylaws in some states) to govern the relationship between members. Depending on state laws, you may be the sole shareholder or member, or you can structure your business so that others can invest and own part of it in various ways.

Taxes

A corporation has a double tax structure by default (the corporation pays federal income tax on the corporation’s profits and then each shareholder pays taxes on dividends received from the corporation). Corporations that meet certain requirements can avoid double taxation so that only the shareholders pay taxes on their share of the profits.

Limited liability companies have flexible tax structures and relaxed corporate formalities. They can choose from several tax structures, including taxation as a sole proprietorship or partnership (depending on the number of members) so that only the members pay taxes on company income in their personal tax return.

Also look into the corporate practice of medicine laws in your state. These laws limit the ability of a corporation or business entity to “practice” medicine or employ healthcare providers under the premise that only licensed individuals can practice medicine. Despite these laws, many states have exceptions, most of which permit a corporation to employ healthcare providers as long as they maintain independent clinical judgment. Even in states that have corporate practice of medicine laws, you can structure your business in various ways to avoid a violation. Your attorney can help you understand the best structure and who may be your business partners.

Decide how you want to be paid

How you’re paid will depend on which practice model you choose: traditional or cash only. Some clinics use a hybrid payment model. Speak with your attorney and consider your personal preferences, patient demographics, and geographic region before you decide.

Traditional model

For a traditional practice model, you’ll need to enroll in Medicare and Medicaid to become a participating provider. The easiest way to enroll in Medicare is via its online portal Pro­vider Enrollment, Chain, and Ownership System (PECOS) here. The Medi­caid process varies by state. To see patients with commercial insurance, you’ll also need to contact insurers to be credentialed as a pro­vider. An experienced attorney can assist you with enrollment and credentialing.

Cash-only model

Many alternative practice models allow you to accept up-front cash payments from patients instead of billing insurance companies. For a cash-only practice, you can either opt out of Medicare or become a nonparticipating provider. To opt out, file an affidavit with Medicare and enter into an agreement with Medicare patients to ensure they understand your services won’t be covered.

Opting out is effective for 2 years and automatically renews at the end of each 2-year period unless you inform Medicare you want to change your status; you can make a change only at the end of the 2-year period. Keep in mind that opting out can disqualify you from accepting any federal funding (including some tax credits and grants, such as software reimbursements and quality incentive programs) that may support your practice and patients.

The other cash-only option, enrolling in Medicare but becoming a nonparticipating provider, allows you take cash payments from Medicare patients and then submit a bill to Medicare so that it can reimburse patients directly. Drawbacks to this model including federal “limiting charges” that cap the amount a nonparticipating provider can charge a patient. Cash-only practices aren’t common, but some practices have had success using this model in certain specialties or geographic areas.

Find the right business partners

Attorneys, accountants, billing companies, and insurance professionals are all key players you’ll want to include in your business plan. These advisors will help you get your business started correctly. Frequently, experts from different industries advise similar clients, so an expert in one industry may be able to refer you to an expert in another.

Get the appropriate insurance coverage

Notify your professional liability insurance carrier that you plan to open an independent clinic; there may be specific requirements for your type of practice. You may want to shop around for insurance policies and/or brokers to meet your needs, including securing coverage for business-related insurance, excess liability, and license defense. Although an on-site physician isn’t required in some states, the carrier may want assurance that you’ve contracted with a physician who can perform any necessary oversight duties. Verify the cost of insurance early on so you’re prepared.

Note that professional liability insurance doesn’t cover general liability (for items such as property damage and nonmedical-related incidents), so you’ll want to speak with a general business liability agent to obtain business coverage. Other insurance needs you should consider include (but aren’t limited to) employment liability, employment practices liability, contractual liability, worker’s compensation, and unemployment insurance. (See Insurance checklist.)

Insurance checklist

Starting your own nurse practitioner clinic requires a variety of liability insurance coverage. In addition to your professional liability coverage (be sure to let your current carrier know that you’re opening a clinic), speak with your attorney or an insurance broker about obtaining insurance that covers:

  • general liability
  • employment liability
  • employment practices liability
  • contractual liability
  • worker’s compensation
  • unemployment.

Your attorney or broker may have suggestions for additional types of insurance you’ll need.

Hire the right staff

You won’t be able to run the clinic on your own, so you’ll want to hire the right people for your practice. Consider your office processes and determine the type of staff you need and their ability to perform delegated tasks based on the rules for supervision and delegation in your state. For example, in Ohio, medical assistants (whether certified or not) are considered “unlicensed assistive personnel” and NPs may delegate nursing tasks only to nurses. That means medical assistants can perform only specific tasks, including registration assistance; obtaining height, weight, and vital signs; and blood draws. Make sure employees work only within their scope of license and training, and develop written policies, procedure manuals, and an employee handbook for reference.

Also check your state’s laws for regulations that NPs must follow. In some states, you’ll need to engage the services of a physician to collaborate on or supervise your practice. For example, in Ohio, NPs don’t need to practice with a physician on site, but each NP must have a collaborating physician who’s available for consultation and certain required quality assurance activities. You can find links to each state’s regulations here.

Avoid legal minefields

Many NPs feel they can better serve patients by owning their own clinic. Ownership can yield many rewards, but set up your business correctly to avoid legal minefields.

Laura Fryan is an attorney at Brouse McDowell in Akron, Ohio. At the time this article was written, Joseph Bucaro was an attorney at Brouse McDowell. This article is not intended to provide legal advice.

References

American Association of Nurse Practitioners. State practice environment. December 20, 2019. aanp.org/advocacy/state/state-practice-environment

LLC University. Links to all 50 states: Secretary of state (SOS) website, business/corporate services division, and business entity searches. December 25, 2019. llcuniversity.com/50-secretary-of-state-sos-business-entity-search

U.S. Small Business Administration. Choose a business structure. sba.gov/business-guide/launch-your-business/choose-business-structure

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