Practice Ownership: Legal and Business Considerations for the Nurse Practitioner Owner



Practice Ownership: Legal and Business Considerations for the Nurse Practitioner Owner





Some state law is more conducive to NP practice ownership than others because of collaboration requirements, or lack thereof, and because of laws concerning reimbursement. Nevertheless, NPs are starting their own practices, and others have owned their own practices for over 25 years, hiring physicians where necessary to conform to the law.

The NPs who have been in practice for more than 20 years often bought an existing practice from a physician. In such cases, the NP was initially an employee or partner of the physician, and the physician opted to leave the area and sold the practice to the NP. In that situation, the NP was faced with many adjustments but did not have to start from scratch.

In the past 15 years, NPs serving Medicaid enrollees have started practices from the ground up. Some of these have started faculty practices associated with nursing schools. Others have been strictly private entrepreneurs.


Advantages of Practice Ownership

Even without a general redesign of primary care, NPs who wish to run their own practices have been able to do so in many states. The advantages to an NP of practice ownership are:



  • The NP decides upon the length of patient visits.


  • The NP decides how the practice is run.


  • The NP chooses employees.


  • The NP controls quality.


  • The NP controls referrals.


  • The NP may titrate workload to income.


  • The NP keeps profits.


The advantages to the public of NP practice ownership are:



  • The patient gets the benefit of combined nursing and medicine.


  • The patient reaps the benefit when the patient gets more face time with the provider.


  • The patient may pay less or get more for the same money.


  • The patient may have better access to health care.

In an NP practice, physicians are called in when necessary, but not all patients have to pay for a physician visit or wait for physician availability when a nurse could fulfill the patient’s needs.


Examples of NP Practices

NPs own the following types of practices:



  • Travel medicine clinic


  • Pediatric primary care


  • Wound care consultations


  • Home visits


  • Family health center


  • Urgent care


  • Cosmetic procedures


Barriers

It is true that NPs have more obstacles to overcome than physicians when starting a practice. These include:



  • Getting on commercial insurance provider panels.


  • Getting and keeping a collaborating physician, if required by state law or if billing Medicare.


  • Getting referrals from hospital emergency rooms.


  • Getting privileges at hospitals.


  • Lack of legal authority to admit patients to nursing homes, to order home care, or to direct hospice services.

This chapter is for the NP who has started a practice or has considered, is considering, or might think of considering opening an NP practice if only he or she had the legal leeway and knowledge of the details involved. Appendix 11-A offers a checklist of considerations relevant to opening a practice.


Decisions Before Starting a Practice

There are eight major business considerations in starting a practice:



  • With whom will I practice?


  • From where will reimbursement come?


  • Will reimbursement cover expenses?



  • How will we get patients to come?


  • Where will the practice be located?


  • If the state requires a collaborative agreement, how will that be handled?


  • What sort of quality measures will we institute?


  • How will patient flow be handled?

Also important, though somewhat less important than the eight major considerations, are:



  • 9. What form will the business take?


  • 10. What systems need to be set up for getting supplies, equipment and repairs, depositing cash, and disposing of hazardous waste?


  • 11. Who will we hire to help?


With Whom Will I Practice?

There are advantages to solo practice and to group practice. Advantages to solo practice are:



  • Autonomy


  • Efficiency of one-person decision making


  • Less income necessary to support one person than multiple people


  • No chance that another person’s lack of productivity will affect one’s business

Advantages to group practice are:



  • Possible greater access to capital


  • Possible shared call and office coverage


  • Another source of expertise


  • Social support


  • Possible economies of scale

There are many potential partners for NPs and many ways of aligning practices. In addition to the traditional solo practitioner or group practice of professionals, where patients come to the office and providers collect from insurance companies, there are hospital-affiliated practices, nursing home-based practices, employer-affiliated practices, and agency-affiliated practices.


From Where Will Reimbursement Come?

Reimbursement might come from any or all of four sources:



  • Government payers: Medicaid and Medicare


  • Private insurers: HMOs and indemnity


  • Patients who pay their own bills


  • Contracts

For details on reimbursement for NP services, see Chapter 9.


A practice owner will be interested in looking into any and all sources of reimbursement. For example, some government and private agencies will contract with healthcare providers for health services. A pediatric NP might contract with the county school system to do immunizations or school physicals. Certain procedures and diagnostic testing can be billed separately from visits, and a potential practice owner will want to see what opportunities there are for getting that income.


Will Reimbursement Cover Expenses?


Practice Expenses: Crunching the Numbers

Many an employed NP has thought, “If I ran this practice, I would never run it like this.” Before going too far down this line of thought, an NP considering opening a practice, and even an NP who expects to remain employed, needs to know how the numbers crunch in the business of primary care. Simply put, it takes a large number of patient visits to support a practice.

Using established numbers from physician practices, one can plug in the numbers for NPs and compare various patient loads. It costs about $200,000 a year to run a primary care physician practice, not including physician compensation. Expenses include:



  • Rent


  • Payroll


  • Quarterly state and federal taxes


  • Office expenses


  • Utilities


  • Answering service


  • Supplies


  • Hazardous waste disposal


  • Payment on start-up loan


  • Professional dues and subscriptions


  • Fee to register lab with federal and state governments


  • Accounting fees


  • Attorney fees


  • Business travel (to nursing homes, patients’ homes, educational seminars, etc.)


  • Gifts to staff


  • Cleaning


  • Insurance (professional liability, workers’ compensation, fire, etc.)


  • Application fee for hospital privileges


  • Beeper and cellular telephone


  • Advertising

Office Expenses. According to a 2003 survey by Medical Economics magazine, payroll costs for internists for nonphysician employees averaged $68,000, staff fringe benefits $12,000, staff retirement $7,500, payroll taxes $13,000, other taxes $5,000,
other expenses $5,000, office rent $21,000, malpractice insurance premium $10,000, business insurance $2,400, lab expenses $4,000, supplies $10,000, car $4,000, utilities $4,000, telephone $3,000, professional fees $2,000, depreciation of equipment $2,000, equipment rental $3,000, equipment maintenance $1,800, and continuing education $1,100.

Figures for internists, family practitioners, and pediatricians are comparable. Expenses are about half of revenues.

Compensation and Charges. Primary care physicians earn, on average, $150,000 annually in compensation, according to Medical Economics magazine data for 2003. Keep in mind that physicians in private practice take as compensation the difference between income and expenses. How they apportion this compensation—retirement, health insurance, vacation pay—is up to them.

For the sake of illustration, let’s consider the average cost of running a solo primary care physician practice to be $350,000: $200,000 in expenses and $150,000 in physician compensation. To cover salary and expenses, a physician has to see 4,700 patients a year at a rate of 20 per day, 5 days a week, 47 weeks a year at a charge of $74.46 per visit. If the physician can get only $50, on average, per visit, the physician must see 7,000 patients per year, or 29 to 30 patients per day. This assumes that payment is received for each visit. In reality, not all bills are paid.

If a physician has contracts to see patients on a capitated payment basis, the physician has to have 2,916 members at an average fee per member per month of $10.00. If $10.00 per member per month is not attainable, then the physician has to have more than 2,916 members on the panel.


NP Practice Compared

Now let’s run the numbers for a practice where the owner-provider is an NP. Assume that the NP pays a physician to be the collaborator on a written agreement required by state law.

An NP practice will have all of the same office expenses, plus the expense of paying a physician who signs the NP’s written agreement. However, malpractice insurance costs considerably less than $10,000 for an NP: it’s more like $750 for an adult NP and $2,500 for an NP practice. For the sake of this illustration, let’s call the expenses equal for an NP and an MD.

Reasonable NP compensation, considering the responsibility of a private practice, would be $90,000. Total expense of running an NP practice, using these projections, would be $286,500.

Assume 4,700 patient visits a year, which translates to a daily load of 20 patients, 5 days a week, 47 weeks a year. An NP could charge $60.50, on average, per visit, and make the salary and expenses listed above. If an NP charged less than $60 per visit, he or she would have to: (1) take less compensation; (2) pay less for office, supplies, and so on; (3) have fewer office personnel than the average MD; (4) see more than 20 patients per day, 5 days a week; or (5) work more than 5 days a week, 47 weeks a year.


Twenty patients a day is a reasonable load, but $60.50 per visit may be unattainable. An NP willing to see 21 patients per day—three an hour for 7 hours a day—could charge $57.64 per visit, if all visits were collected upon, and support a practice. More than 20 patients a day, every day, is a taxing patient load. That is not counting return telephone calls, personnel problems, payroll, and so on.

Still, the economics are favorable for NPs who want to be their own bosses. They may not be working any harder than employee NPs. Those NPs who work for someone else are going to be expected to see about 20 patients a day, but it will be someone else’s decision that they do so, and the majority of employed NPs will not make $90,000 per year.

For examples of practice expenses and revenues of a physician practice and an NP practice compared, see Exhibits 11-1 and 11-2. Exhibit 11-1 demonstrates that an NP practice could be run on approximately $100,000 less per year than a physician practice, due largely to the differential in salary between NPs and physicians.

Looking at expenses as a percentage of collections, one author, Borglum, calculates that a physician’s salary is generally 41% of collections.1 Borglum advises practices to count on paying 26.2% of revenue for nonprovider staff salaries, 7.3% for rent, 5.9% for supplies, 1.8% for insurance, 0.9% for outside professional fees, and 0.4% for marketing. An NP who practices in a state that requires physician collaboration will have to add the cost of physician consultation to the cost of doing business.


How Will We Get Patients to Come?

An NP who starts a new practice, as opposed to buying an established practice, will need to bring in patients with whom the NP has already established a relationship or bring in new patients. Either way, there are costs involved.

If an NP has signed an employment contract with a previous employer in which the NP has agreed not to compete with the previous practice under specified conditions, the NP must honor the agreement or face the possibility of a lawsuit. If the NP has not signed such a “noncompetition” clause, then the NP is legally free to take established patients to the NP’s own practice. However, the previous employer, who has lost patients, is quite likely to be upset, and this nonmonetary “cost” is certainly worth considering.

Whether the NP is seeking new or old patients, some marketing efforts will be necessary. Marketing can take the form of word of mouth, letters, flyers, advertisements, health fair appearances, speaking engagements, television appearances, radio announcements or talk shows, or newspaper articles.

Through marketing the practice, potential patients learn what services the practice provides and the advantages of visiting the practice. Advantages of a particular practice to a patient may be convenient location, ease of getting an appointment, acceptance of the patient’s insurance, an especially personable provider, extraordinary personal attention, or a reduced fee for cash-paying patients.



Some general principles of practice marketing are:



  • The marketing message must be repeated many times—some say 12, some say 27 times—before a person learns it.


  • Create a sense of affiliation with the practice.


  • Create an image for the practice and a marketing message.


  • Strive to exceed the patient’s expectations, and the patient not only will stay with the practice but also will tell others about it.


  • A new patient is worth the price of a visit; a patient kept is worth thousands of dollars.




Where Will the Practice Be Located?

The location of the practice will determine how easy or difficult it is for patients to come. If the patient base that the NP is looking for is using public transportation or foot transportation, then the practice must be on a bus line or in a neighborhood. If it is an inner-city practice but the patients are coming by car, then convenient and inexpensive parking is a consideration. If a practice is looking for walk-in traffic, then a storefront location would be better than a second-story office in a large building.

Location also can have implications for practice income. In rural areas, there could be more opportunity due to less competition. On the other hand, there could be too
few patients to support a practice. In certain urban areas, there is actually a dearth of healthcare providers, while in other urban and suburban areas, there is an oversupply of providers. A study of locations of other providers is a prerequisite for choice of practice location.


If the State Requires a Collaborative Agreement, How Will That Be Handled?

If a collaborative agreement is required by state law, a practice will need to find a collaborator before opening.

The first step is to find out what the state law requires in the way of physician collaboration. Is it a signature on a written agreement and an agreement to consult when necessary, or is it more involved, such as quarterly review of charts, cosignatures on charts and prescriptions, and monthly meetings?

The second step is to make a list of possible collaborators. NPs will want to look for a collaborator who is competent, has a similar philosophy of patient care, will be accessible when necessary, and will do what is needed for a reasonable price.

The third step is to discuss the NP’s needs, the state requirements, and fees with the potential collaborators. Many potential collaborators are worried about increasing their liability for malpractice suits if they collaborate with an NP. Therefore, an NP may want to suggest that potential collaborators inquire about any such increased liability from their malpractice insurer. If a physician’s premiums will go up, then that cost will have to be borne by the NP. It is unlikely that an insurer will raise a physician’s premium for collaborating with an NP, however.

The fourth step is to weigh the potential contributions and expense of various possible collaborators.

The fifth step is to draft, or have an attorney draft, a professional services contract between the physician collaborator and the NP. If there are few willing collaborating physicians, then a practice’s longevity is threatened if a collaborator bows out after the practice has opened. Therefore, it is wise to hire a collaborator and seal the arrangement with a written contract with a term of at least 1 year and 60 days notice before the collaborator terminates the relationship. See Appendix 11-B for an example of an NP-collaborator agreement.

Finally, draft the written agreement as required by state law. If written practice protocols or guidelines are required by law, obviously those must be drafted also.


What Sort of Quality Measures Will We Institute?

If quality measures and systems to collect data on performance are set up at the time a practice opens, then data collection will proceed from day 1, and attention to demonstration of quality will be built into the structure of the practice.

At what sort of quality measures should a practice look? In short, quantity and quality are most important. Practices will be interested in quantity—productivity—because
the practice must do enough business to cover costs. Practices will be interested in high-quality clinical care, so that the practice can build a reputation for quality to satisfy patients and to avoid medical errors.


Productivity

Productivity directly affects income. In a fee-for-service system of reimbursement, the more visits made and billed, the more a practice makes. In a capitated system of reimbursement, the more patients enrolled with a practice, the more monthly fees the practice receives, and the more patients potentially will need attention. Providers and staff who generate lots of work should be rewarded accordingly, and providers and staff who generate little work should be encouraged to be more productive.

Therefore, a prudent practice owner will build systems for tracking productivity into a practice from day one. Most software systems for practices track provider productivity. As for office staff productivity, measures should be agreed to by staff members and practice administration at the time of hiring, with periodic review and revision, if necessary, of standards that are set.


Clinical Performance

A good start when attempting to measure clinical performance is the Healthplan Employer Data and Information Set (HEDIS) put out by the National Committee on Quality Assurance (NCQA). Because NCQA audits health plans, and health plans audit practices to collect data to submit to HEDIS, the HEDIS measures are becoming the industry-wide standards for comparing quality among providers. For more about HEDIS, see Chapters 14 and 15.

Another source to review when thinking about measuring clinical performance is Medicare’s Physician Quality Reporting Initiative. Information on this program is available through Medicare’s web site, www.cms.hhs.gov.


How Will Patient Flow Be Handled?

From day one, there must be an agreed-upon way of setting up appointments, greeting patients, getting insurance or other payment information, obtaining clinical intake information (history, old records, chief complaint, vital signs), visiting the provider or providers, and arranging follow up as needed.


Appointments

Appointment-making software is available. Appointment books from office supply stores and a pencil also work fine.


Payment Intake Information

For each patient, the intake staff person will need to obtain:



  • Name


  • Address


  • Telephone number


  • Social Security number



  • Date of birth


  • Method of payment: insurance, cash, credit card


  • Insurance company name, address, and telephone number


  • Copy of insurance card


  • Emergency contact name, address, and telephone number


Clinical Intake Information

A practice should have a clinical intake form—a history and physical form—suited to the patient. An example of such a form for the college-aged patient is included as Exhibit 11-3.


Provider Visits

A system for dealing with patient flow would address the following questions:



  • Does the provider see one patient at a time or work multiple rooms?


  • Does the provider get the patient from the waiting room, or does an assistant get the patient into the examination room?


  • Does the provider talk to the patient while the patient is dressed, or does an assistant get the patient into a gown prior to the arrival of the provider?


  • Does the provider chart and make telephone calls in a separate office, or is the provider’s office space within the exam rooms?


  • When the provider is finished, who takes care of ordering referrals and laboratory tests?


  • Does the provider do all of the history taking and teaching, or will registered nurses do these things?


Follow Up

Review and follow up of laboratory testing, telephone calls to patients who need follow-up contact, and telephone calls to other providers about patient issues all are tasks that providers or some staff member, who is integrally involved in patient care, must do. If a provider is to do these things, there must be time built into the schedule. If another staff member is to do these things, there must be systems for communications among provider, helper, and patient and documentation in medical records.


What Form Will the Business Take?

There are four options for the business structure of a practice: sole proprietorship, partnership, limited liability company (LLC), and corporation.


Sole Proprietor

In a sole proprietorship, the business and the individual are one and the same. Any debts or legal liability belong to the individual owner. The owner files tax information on a Schedule C, along with the individual’s tax return. Year-end losses can be deducted from the individual’s taxable income. Year-end profits are added to other income the individual may have and are taxed accordingly.



Advantages of a sole proprietorship are: (1) the owner makes all decisions; (2) losses can be deducted from personal/family income; (3) there is no potential liability for purchases, mistakes, or bad judgment of a partner; and (4) there is no double taxation as is possible with a corporation. Disadvantages of a sole proprietorship are: (1) there is no one to help with expenses of start-up and maintenance, and (2) ups and downs are dealt with alone.


Partnership

A partnership is a business relationship involving two or more individuals or business entities. Most partnerships spell out the relationships between or among the parties in a partnership agreement. If there is no partnership agreement, state law of partnerships governs the relationships.

Partners are liable for the debts and legal liabilities of the other partners. Partners share profits, decision making, administration, and workload in some way agreeable to all partners.

Profits and losses in a partnership are divided and deducted or added to the individual’s tax forms. The partnership has a tax form, and the partnership’s distributions of profits or losses to the individuals involved appear on the individuals’ tax forms.

A lawsuit against the partnership implies liability for all partners. A debt incurred by one partner is a debt shared by all partners.

The major decisions to be made by partners are:



  • What happens if one partner wants out?


  • Who inherits if one partner dies?


  • How will profits and losses be divided?


  • What contribution to start-up expenses will each partner make?


  • How will duties be carried out?


  • How will decisions be made?


  • How will disputes be settled?


Advantages of a partnership include: (1) risk is shared; (2) success and failure are shared; (3) losses can be deducted from individual partners’ taxable income; and (4) there is backup for individual partners in the practice. Disadvantages of a partnership include: (1) the debts incurred by one partner are the debts of the partnership; (2) a partner may be liable for another partner’s mistakes; (3) there are many opportunities for dispute among partners; and (4) a less productive partner will affect all other partners.


Limited Liability Company

An LLC combines some of the best attributes of partnership with the best attributes of a corporation. State laws vary regarding the specifics of LLCs. The general provisions, however, are:



  • Income passes through to the individual members of an LLC, as in a partnership.


  • Losses pass through to the individuals, as in a partnership.


  • Individual members are liable for the debts of the company only up to a limit.


  • Members agree on operational matters through a written document. If there is no written agreement, differences are settled according to state law regarding LLCs.


  • Professionals may form LLCs.

The main advantage of an LLC is that this business form combines the best of partnerships and corporations. The disadvantages of an LLC include: (1) a state may not include the LLC in its legal forms of business entity; (2) the law is not as extensive addressing this form as the other forms; and (3) states may have specific conditions that must be met before forming an LLC.

A professional forming an LLC is still liable for professional malpractice. However, in other forms of lawsuits against an LLC, the business entity affords protection against individual liability as in corporations.


Corporation

A corporation is a business entity with its own identity. Although one individual may be the sole stockholder, director, and officer—the owner—the corporation is nevertheless a separate legal entity.

Under state law, professionals often must form a specific form of corporation with specific laws. Called a professional corporation or professional association, this form of company resembles a general corporation in many ways. The corporation has its own identifying number and tax return with the Internal Revenue Service. Decisions are made by officers, a board of directors, and stockholders. In some states stockholders must be like-licensed professionals.

Advantages of a corporation are: (1) when several individuals have ownership interest in the business, there are mechanisms for decision making and dispute resolution; (2) there are mechanisms set for dividing profits and losses, based on capital contribution and professional work done; (3) many corporations like to deal with other corporations; (4) expenses of doing business are taken from a central
pool before distribution of profits to stockholders; and (5) there are legal limits on the personal liability of individuals. Disadvantages are: (1) the amount of paperwork required by state and federal governments; and (2) corporate profits are taxed, and, thus, an owner could pay tax on corporate profits and pay again on a distribution of profits.

Liability Ramifications. A corporation is often liable for corporate debts, rather than each individual stockholder. Professionals are not shielded from malpractice liability, however.

Professional Corporations. Some states’ laws prohibit the forming of a professional corporation by professionals with differing forms of licenses—for example, nurses and physicians. Before an NP attempts to form a corporation with a physician, he or she should consult state law.

Choice of Corporate Structure. State laws governing partnerships, corporations, and LLCs differ. Consult a local attorney about choosing a business form and drafting the necessary legal documents.

Corporate Practice of Medicine Doctrine. This doctrine is based on a tradition that medicine and business do not mix. Some states have ignored or dispensed with this doctrine. In other states, it is still on the legal books. Nevertheless, professional corporations are an option in every state.


What Systems Need to Be Set Up?

In addition to systems for tracking quality and quantity of care provided, systems will be necessary for:



  • Tracking inventory of supplies


  • Purchasing supplies


  • Purchasing equipment


  • Getting equipment repaired


  • Depositing cash at day’s end


  • Disposing of hazardous waste


  • Protecting patient confidentiality and privacy

There will be vendors locally with whom accounts can be opened and arrangements made for each of these tasks.


Who Will We Hire to Help?

An early decision to be made is: How many staff will be needed? What kind of talents and skills will be needed? Where can these employees be found?


New practice owners are likely to use past experience to judge how much employed help will be needed. Minimum services include:



  • Reception/appointment making


  • Billing


  • Cleaning


  • Accounting


  • Payroll


  • Legal


  • Medical assistance

Many of these services can be obtained on an as-needed basis as opposed to hiring employees. In many communities, medical billing is done by billing services, as is payroll. Reception and appointment making, however, are almost always done by employees of the practice.


Business Planning

The success of a practice is closely related to several factors that can be researched prior to opening the business. Those factors include:



  • The need for the services in the community


  • Community interest in the services to be provided


  • Size of the potential patient pool in the community


  • Willingness of the community to use the services of an NP


  • Willingness of third-party payers to reimburse NPs for services

The best way to plan for a practice is to produce a business plan for the practice. A business plan is a written document that answers the questions:



  • What do you plan to offer?


  • How will you market the services?


  • Who will purchase the services?


  • Where will the business be located?


  • How big will the practice be?


  • How will the practice’s activities, policies, and procedures be organized?


  • How will expenses be covered?


  • What are the potential problems with the business?


  • How will those problems be dealt with?


  • What start-up money is needed, if any?


  • What form will start-up funds take: equity, debt?


  • How will start-up costs be repaid?

Often used to convince investors to invest or lenders to lend money to get the business started, a business plan also is an exercise that forces someone who is considering
starting a business to research the feasibility of the business and organize a plan for carrying out the business goals.


Writing a Business Plan for an NP Practice

A business plan can run 25 to 40 pages and can cost thousands of dollars in consulting fees. A short version may be satisfactory if a business owner is looking for a rather small start-up loan and few investors are needed. Some NPs who have started practices have enlisted students in graduate business programs to do business plans for them as part of a class project. In these cases, the NPs have gotten a business plan for a much lower rate than is often commanded. For the do-it-yourself enthusiast, there are business plan software programs that an NP can adapt to suit the NP’s purposes.

At a minimum, a business plan for an NP practice would include:



  • A list of services provided to patients


  • Evidence of the need for those services


  • Projections for the practice’s income compared with expenses


  • A description of the principal movers who are starting the business, including relevant experience and skills


  • An organizational plan


  • A plan for managing the day-to-day operations


  • Investment needs


  • Potential problems and critical risks

A sample business plan is given in Appendix 11-C.


Services Provided

In a business plan, an NP contemplating a practice venture lists the services to be offered. For example, in a primary care practice, the likely services might include:



  • Health assessment (histories and physicals)


  • Management and treatment of acute episodic illnesses and chronic stable illnesses


  • Preventive education and counseling


  • Screening for health maintenance


  • Urgent care, such as stitching of lacerations and incision and drainage of certain lesions


Evidence of the Need for Those Services

If a proposed location for the practice is in a community that has been documented as underserved for the services listed above, the business plan should include citations of the documents evidencing lack of primary care services. On the other hand, if the location is adequately served but the practice is offering some more attractive way of providing the service, the business plan should describe how the new practice will participate in the current market.



Projections for the Practice’s Income Compared with Expenses

This part of a business plan requires the writer to estimate. Some knowledge of the economics of private practice will be necessary to complete this section. In the case of an NP practice, one would need to know the number of people in the community who are potential patients, the income that could be expected per enrolled patient or per patient visit, the going rate of collected billings in a similar practice, and the projected expenses of the practice. Expenses such as rent would be documented by citation to classified ads for business space or by an oral quotation given by a commercial realtor based on number of square feet needed and location.


Description of the Principal Movers Who Are Starting the Business

This section is résumé material. It answers the question: Do these potential business owners have the relevant experience and skills to make a go of the business?


Organizational Plan

If there is to be more than one owner/director, the principal movers should draw up an organizational chart that shows how authority will be distributed.


Plan for Managing the Day-to-Day Operations

Practice owners who also are providers may want to have a nonprovider—an office manager—handle the day-to-day operations.


Investment Needs

If outside funds are needed for start-up, the business plan should include an estimate of what is needed. If partners or corporate codirectors are contributing start-up funds, the business plan should state who is contributing and how much and should state a plan for return on or repayment of investment.


Potential Problems and Critical Risks

If there are known risks to the business, the owners should state these risks in the business plan and state a plan for addressing these risks. For example, if an NP knows that MCOs are reluctant to admit NPs to provider panels, thereby contributing to a risk of inability to collect reimbursement, the NP should include this risk in the business plan and give a plan for addressing or minimizing the risk. An example would be meeting, prior to the opening of the practice, with MCO executives and obtaining a letter that one or more MCOs are willing to admit NPs as providers.


A Business Plan’s Top 20 Questions

Usually a business plan answers 20 questions, the questions that most people will ask about the business. The 20 questions that are most asked of owners of new businesses and that an NP thinking of opening a practice should be prepared to answer are:



  • What type of business do you have?


  • What is the purpose of this business?


  • What is the key message or phrase to describe your business in one sentence?



  • What is your reason for starting your own business?


  • What is your product or service?


  • Can you list three unique benefits of your product?


  • Do you have data sheets, brochures, diagrams, sketches, photographs, related press releases, or other documentation about your product/service?


  • What is the product?


  • What led you to develop your product?


  • Is this product or service used in connection with other products?


  • What are the top three objections to buying your product/service immediately?


  • When will your product be available?


  • Who is your target audience?


  • Who is your competition?


  • How is your product differentiated from that of your competition?


  • What is the pricing of your product versus your competition?


  • Are you making any special offers?


  • What plans do you have for advertising and promotions?


  • How will you finance company growth?


  • Do you have the management team needed to achieve your goals?


Sections of a Business Plan

The following are the customary sections of a business plan:



  • Executive summary


  • Vision/mission statement


  • Background information on the business


  • Objectives


  • Capital requirements


  • Management team (in-house and outsourced)


  • Product strategy


  • Current product/service


  • Research and development


  • Key factors in delivery of service


  • Analysis of the market


  • Definition of the market


  • Profile of clients


  • Competition


  • Business risks


  • Plan for marketing the practice


  • Marketing strategy


  • Advertising and promotion


  • Publicity strategies


  • Financial plan


  • Repayment plan for loans/dividends to investors


A typical way to begin is to answer the top 20 questions. From the answers, one can develop the executive summary, then work on the details of the sections one by one.

An NP entrepreneur (or any entrepreneur) is not expected to be an expert on writing a business plan. An entrepreneur should be prepared to answer these 20 questions, however, so that a business consultant will have some substance to use as the framework for developing the plan.

It is common for someone with an idea for a business to give it up after considering all of the questions brought up by a business plan. If this happens, the exercise of producing a business plan will have served to save a wealth of lost time and money.


Getting a Business Loan

A prospective practice owner may want a bank loan or a venture capitalist’s investment to cover the expenses of start-up. A business plan will set out the start-up costs and a plan for repayment.


Multiple Uses of a Business Plan

In addition to helping a practice owner decide whether a practice will be profitable and helping lenders decide whether to participate, a business plan can be used to orient employees, suppliers, and other people with whom the business will deal. A strong business plan points out to the practice owner potential adversities and weak areas, giving an opportunity to respond before there is a business failure.


Resources for Getting Help with a Business Plan

Among the resources for more information on business plans are the Small Business Administration and the Service Corps of Retired Executives, both of which may be listed in the telephone book. Other possible resources are business consultants, businessoriented community groups, professional organizations and professional journals, business consultants, and public libraries. Every local library will have at least one book on writing a business plan.


Looking at the Big Picture

An NP planning to start a practice will need to take a look at the healthcare industry in general, and particularly the climate in the NP’s geographic area. Whether there is a need for the NP in practice to fill, whether there will be enough business to support the practice, and whether there are any barriers to overcome are three questions that an assessment of “the big picture” can answer. The big picture includes the business climate, the competition, the law regarding NPs, and patient and public perceptions of NPs. All of these considerations will affect how the practice does and whether it will survive. An investor or lender reviewing a business plan will be impressed by a
plan that takes the big picture into account. For a sense of “big picture” implications for the small NP practice, see Chapters 12 and 13.


Looking at the Smaller Picture

An NP considering starting a practice also will need to consider how entrepreneurship and business ownership will affect the NP’s life. Possible effects of small business ownership on an individual include:



  • Lack of a separation between work life and personal life


  • Necessity of an investment of time and money in start-up


  • Inconsistent income while practice is growing


  • Uncertainty about success of the business


  • Anxiety about ability of partners or coworkers to hold up their end


Doing Business

Several responsibilities come with being a practice owner. They include:



  • Protecting the confidentiality of and storage of patient records


  • Carrying out the responsibilities of an employer (see following)


  • Registering the practice name with local government


  • Disposing of hazardous waste produced in the course of business


  • Complying with fire marshal inspections and building codes


  • Maintaining the laboratory facilities in accordance with federal and state law


  • Credentialing providers


  • Ensuring that hiring and firing are done in accordance with the nondiscrimination provisions of law


  • Providing malpractice coverage for the providers or company


  • Providing general liability for the practice (against slip-and-fall or other injuries to patients)


Responsibilities of an Employer

Employers have legal and practical responsibilities. Legal responsibilities include:



  • Withholding and paying employment taxes


  • Ascertaining that a hiree is an American citizen or legal immigrant


  • Paying workers’ compensation and unemployment insurance premiums for employees


  • Ensuring that employees actually have the credentials and licenses that they say they have


  • Training employees to provide safe care or ensuring that hired employees are already adequately trained



  • Ensuring that employees have a safe working environment


  • Complying with the provisions of the Americans with Disabilities Act, which prohibits discrimination against a prospective hiree with a disability who needs only “reasonable accommodation” to do the proposed job

Practically, employers want to hire employees who have social skills, are motivated to perform, and will either make decisions or take direction, depending on the need.

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Sep 9, 2016 | Posted by in NURSING | Comments Off on Practice Ownership: Legal and Business Considerations for the Nurse Practitioner Owner
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