Fee-for-Service Private Practice

9 Tips for Transitioning to a Fee-For-Service Private Practice

Wondering if it’s time for you to make the leap to a fee-for-service, or private pay practice?

Private practice needs to create a win-win. Your client gets the high-quality therapy they deserve, and you build a thriving private practice that you love. Too often, insurance underfunding creates a win-lose scenario for therapists who accept managed care. The clients get access to high-quality therapy, but at the expense of the therapist, who struggles under the demands of a large caseload.

The underfunding of mental health by insurers means that therapists who choose to be “in-network” must see 30 or more clients per week to be profitable. This model creates burnout for the therapist, and diminishes the quality of the therapist’s work.

This has led to a trend of more and more therapists making the decision to leave managed care and build private pay (or fee-for-service) practices. This is more common in mental health than in any other area of healthcare.

When I ask my clients WHY they want to transition to a private pay practice, their number one response is “freedom”. They have a vision for their lives, and for their businesses, and managed care is standing in the way of achieving that.

Therapists are committed to the well-being of their clients. The decision to leave managed care is not one that therapists make lightly.

For many therapists in private practice, dropping insurance panels feels a bit like stepping off a cliff and hoping for the best. We’ve got some tips to show you how…

Tips to Move from Managed Care to Private Pay

Transitioning from an insurance practice to a private pay practice will require you to go through this “turning away” process. You WILL start to attract your ideal clients, but it won’t happen overnight.

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We’ve helped many therapists over this hurdle, and want to share a few thoughts to help during this transition:

  1. Up your marketing game. Top-notch marketing is essential to building a fee-for-service private practice. When you’ve got an insurance-based private practice, your marketing doesn’t have to be very sophisticated. Just having a website and some directory listings might be all the marketing you need. Insurance-based clients generally select a therapist based on who takes their insurance and convenience of appointments. This is NOT the case in a private-pay private practice. Clients are seeking out an expert in the field. Your marketing has to reflect that. Through our marketing programs, we’ve seen a direct connection in the quality of a therapist’s marketing and the type of clients who call.
  2. Get crystal clear about who you do and do NOT work with. Maintain these standards; if a new client isn’t your ideal client, offer a great referral for them. One of my mentors says, “There’s another bus coming”. If you can hold this mindset, it sends a powerful message to the universe about who the right clients are. (If you need help identifying your ideal client, check out this video: https://www.youtube.com/watch?v=rnpAtxblcpc.)
  3. Decide whether you are willing to provide statements for out-of-network benefits. If you are, this is a great way to service clients that specifically want to work with you but need to get some reimbursement. One key is to have them file all the forms, don’t do this for them, too much hassle.
  4. Consider what your practice specialty will be if you haven’t already done so. Trying to be a generalist with a fee-for-service practice is extremely difficult. Why not take the easy path and specialize? Clients are willing to pay a premium for your services when they know you have specialized expertise.
  5. Develop a specific process for handling new client calls. Generally it’s not just scheduling an appointment with new clients; expect some form of a consultation.
  6. The day of the “co-pay” for mental health is fading. With the prevalence of high-deductible plans, the reality is fewer and fewer clients are able to just pay a small co-pay. This means that even insurance-based practices have had to develop “sales skills”, so you’re a step ahead of the game!
  7. Develop multiple streams of income. If you already have a consistent flow of new insurance clients, this is the time to start a group or workshop. This will allow you to generate revenue from these referrals, even if they can’t afford to work with you privately. (Listen to this podcast I did with Katie May on how she’s mastered that!)
  8. Cultivate private-pay referrals. People who use insurance for therapy generally refer people who use insurance for therapy. People who pay cash for therapy generally refer people who pay cash for therapy. This means that as you establish your reputation as a fee-for-service practice, you’ll get more referrals for clients who don’t want or need to use their insurance.
  9. Create a specific transition plan for yourself. Determine whether you’re going to drop insurance panels slowly, or pick a date to stop taking them all.

One final note – I’ve never worked with ANYONE who regretted the decision to leave insurance. What I generally hear is, “I wish I would’ve done it much sooner.” You may have a few months of transition, but you’ll be so glad you did.

$100,000 is an important threshold for private practice: At this level therapists start to really take themselves seriously, see themselves as business owners, and grow into their professional identities. This is the level where you truly start to become profitable, and you are really sharing your gifts with the world. One of the things I’m known for is helping psychotherapists build 6-figure private practices… 

Some people misunderstand when I talk about earning $100,000 in private practice, so let me be REALLY CLEAR: this is the starting point of a successful private practice. It is by no means a cap or a ceiling for your income. I see $100,000 as a baseline for income, and it only goes up from there. $100,000 per year is where it starts to get good!

However, earning $100,000 per year in private practice is really hard if you’re taking insurance. (I know, I know, there are plenty of you that do it, but it generally means that you are seeing more than 30 clients per week in order to do so. In my opinion, that’s way too many, and the toll it takes on your quality of life is very high.) Most insurance-based practices I work with max out at about $82,000 per year. At the current national average for insurance reimbursement ($67 in 2013), that’s 25 clients per week to earn $82,000 per year.

Generally after a few years of this, therapists start to realize that it’s hard to truly build a quality lifestyle making $82,000 per year. That’s when they start to consider transitioning from an insurance-based practice to a fee-for-service, or private pay practice.

Click Here to Download the Niche Selection Checklist