12 / 27 / 2016

Legal Considerations When Starting Your Own Medical Practice


Whether you are fresh out of medical school or deciding to leave a group practice, starting your own medical practice has a set of challenges that are best addressed in order.

Step 1: Credentialing and Licensing

Determine Insurers and Begin Credentialing

Private insurers require you to credential with them before you can submit claims and be reimbursed. You need to decide which private and public insurers you will accept.

Credentialing can take several months. Prepare the following documentation:

  • Medical education
  • Residency
  • Evidence of malpractice insurance*

*Not all states require malpractice insurance but it can protect your personal assets in case a patient sues.

Determine the public health insurance programs to accept:

  • Medicare
  • Medicaid
Obtain Licensing

State Licensing - Obtain from the medical board of the state in which you will have your medical practice. See the American Medical Association for a list of links to each state’s board.

National Provider Identifier - All medical providers must obtain it for private insurance, Medicare, and Medicaid tracking purposes. See the National Plan and Provider Enumeration System website to apply.

DEA registration - If you will be prescribing medication, you must register on the DEA website.

Additional Certifications:

  • CLIA - If you plan to have a clinical lab in the office you are required to comply with the Clinical Laboratory Improvement Amendment of 1988.
  • State Health Department - If you plan to provide X-rays in the office, you must register with the state.
  • Check for any additional certifications required by specific procedures, equipment, or treatment.

Step 2: Business Structure and Funding

Determine Business Structure for Tax Purposes

The type of business or corporate structure impacts how your taxes are handled and how much personal liability you carry for lawsuits, debt, and losses.

  • S-Corporation - You only pay taxes on your personal income from the business. This is the most common choice among medical practitioners.
  • C-Corporation - The business is taxed as an entity separately from the owner(s). You would pay a business tax and your personal income tax.

Business Documentation - Consult an attorney to assist you with the decision on the structure and to help draft the necessary legal documents:

Apply for an Employee Identification Number (EIN) on the IRS website then register for state and local taxes. The U.S. Small Business Administration website contains a wealth of information pertinent to a medical practice business.

Funding a Medical Practice

Most providers use a small business loan or other outside capital to cover the startup costs. Even if you have student debt from medical school, you can make it work. Consult the U.S. Small Business Administration website for more information.

Potential funding needs:

  • Real estate
  • Construction
  • Equipment
  • Attorney
  • Accountant
  • Consultant fees
  • Computers
  • Medical record software
  • Office furniture
  • Disposables such as gloves, gauze, syringes, and office supplies

If you lease existing office space, your funding needs will be reduced. Another alternative to save money is to buy into an existing practice or take over a practice from a retiring physician.

Existing office space may still need refitting to make an effective medical office. Buying a practice or taking a partnership in a practice means the infrastructure, processes, and procedures are already in place.


Everything must be in writing. Do not rely on verbal promises or statements. Anything you require should be explicitly written into the contract. Make sure you understand the contract terms and the nature of the debt obligation for all contractual relationships.

  • Real estate
  • Credit line
  • Partnerships

Bank contractual agreements are separate from partnership or operating agreements because the bank is not usually a party or signatory to those contracts. Therefore, the bank is not subject to those contract terms.

The bank will follow only the contract you have with it, exactly as it is written. Rely on your own attorney, not the attorney for the group to help you analyze the contract before you sign.

Step 3: Setup

Organization and Management


  • Services you will provide
  • Office location
  • Legal structure
  • Relationship between yourself and other physicians in the practice
  • Staffing levels and specialties

Develop an external advisory team:

  • Attorney
  • Accountant
  • Banker
  • Practice management consultant
  • Information technology support and services
Financial Management

Develop your financial statements:

  • Operating and capital budgets
  • Balance sheet
  • Profit and loss statement
  • Cash flow statement

Determine codes, CPT and otherwise, to use for billing and set your fees.

Consider outsourcing billing and collections to a service experienced with cycle management and claims submission for a medical practice.

Plan for 90 to 120 days of operating capital to cover your cash flow from the time you see your first patient until payments and reimbursements begin cycling in.

Hiring Staff

Your most important hire is your first: a practice manager, also called an office manager or practice administrator. Then you will jointly hire the rest of the administrative and clerical staff.


  • Job descriptions
  • Compensation packages
  • Salary scales

Find out beforehand which questions are legally off-limits in a job interview.

Know what you want to ask and ask each candidate for a specific position the same questions for easy comparison.


Review and be ready to comply with a variety of regulatory requirements:

  • Stark Law
  • Anti-kickback statutes
  • OSHA
  • CLIA
  • Requirements for your specific branch of medicine
  • Specialized equipment and procedures
Ensure Quality Care and Outcome Delivery

Workflow - Create and maintain an efficient process and a method of measuring results.

Information Technology - Select the right IT vendor, equipment, and support. You will need software for:

  • Practice management - demographic information, scheduling, and billing
  • Electronic health records
  • E-prescribing - through EHR or stand-alone application


Medical Group Management Association - representing health care administrators

American Medical Association - information about legal issues, medical ethics, and practice management

Accreditation Council for Continuing Education - list of state medical societies and associations

Request Consultation

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