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Legal Entity For A Clinic

When a physician wants to go out on their own, the topic of the legal entity comes up. There are all sorts of theories out there and some entrenched views which are as solid as our patient’s perceived need for antibiotics.

If you are planning to go out on your own, all you need is a medical license to practice medicine and a location. The legal entity argument has been dominated by lawyers and CPA’s who stand to profit from it.


Your State’s Medical Board Is Useless

Surely my state’s medical board would have resources to help me get started in establishing my own practice! Unfortunately, no.

So I visited the Oregon Medical Association’s website for some information. After a lot of clicking around I stumbled on this page. As with most medical associations, the purpose is to make money. It’s a link to a bunch of books written by medical consulting companies.

I checked out a few other states, all about the same when it comes to practice resource information. Most of what I see on their pages are fear mongering to establish their credibility.


Private Consulting Groups

There are many medical practice consulting groups which you can hire to help you start your practice. They will take you all the way from building a pro forma to opening your doors and marketing.

They will also assist you with choosing the correct legal entity for your practice.

Such companies will make it seem as though you need a slew of CPA’s and lawyers behind you just to see a patient. This is far from the truth.


The Purpose Of A Legal Entity

The reason you want a legal entity designation is for the purpose of the “limited liability”. Ideally, you want to create a separation between yourself and the company.

If you are a fast food restaurant that served food to a customer who became ill due to improper food handling then the customer will sue the fast food restaurant.

If you are a physician who owns a clinic in Oregon and caused harm to a patient due to negligence, then you get sued, not “Same-Day Care Inc.” 

In fact, you can be an LLC, S-Corp, C-Corp or whatever entity you like but the healthcare professional who took care of the patient will be the one who is sued.

You can have 12 layers of legal protection between you and the business, using trusts and corporations and separate accounts. In the end, medical malpractice lawsuits will land on your lap.

Fortunately most lawsuits settle far, far, far below $1 million and the ones that go to trial don’t hit the double commas either. Malpractice insurance will often cover you for at least $1 million and you can opt for much higher numbers if desired.


What’s Protected? What’s At Risk?

But wouldn’t an LLC or INC protect your personal assets? No. Your assets are protected by the state and tied to you as an individual. Depending on your state, some retirement accounts are protected and some personal assets are protected against judgement up to a certain amount.

The limited liability afforded by an LLC or Corporation can protect you in case a person sues you because they slipped and broke their neck on the stool specimen you spilled in the waiting room.

In this shitty example, they would sue the Corporation. So then you should establish a corporation right? Nope. This still isn’t enough of a reason as you’ll see below.

If your clinic isn’t incorporated and you simply have a name above the door then the fecal accident patient would sue you and any money would be paid by the business insurance you have or your umbrella policy.

It’s anything above what your insurance will cover you for that the claimant can pursue you for individually.


What You Don’t Need…

  • you don’t need a business plan (pro forma)
  • you don’t need a loan
  • you don’t need to establish a legal entity
  • you don’t need a CPA
  • you don’t need a lawyer
  • you don’t need to buy a $50,000 EMR
  • you don’t need $150k office renovation
  • you don’t need a consulting company
  • you don’t need a $4k desktop
  • you don’t need business cards
  • you don’t need stationary
  • you don’t need a $15,000 lab station


So WTF Do You Need?

  • you need a medical license which I hope to god you have
  • you need a DEA
  • you need a tax ID which is like a SSN for your business
  • you can sublease a space or rent out your own separate space
  • you need a name for business and a website
  • you need a free EMR
  • you could use some basic office equipment, purchased used
  • you need an account with a medical supply company
  • you need an account with a lab company


And Eventually…

A time might come when you actually start making good money and you’ll want your own digital imaging machine. You may want to have an iStat machine to run all your own labs on-site.

When you’re ready to hire employees then you can add workman’s comp insurance and hire a payroll service such as Gusto

You want to really get into the weeds with billing and marketing. There are some good resources, I would recommend starting with AAFP Practice Management Journal.

But for all the free reading you can handle in the meantime, check out AAFP’s practice management resource page.

Should you later realize that you’re better off with an S-Corp because you now have 3 offices and $5,000,000 in assets, then you can establish whatever corporate entity you like with the help of a competent lawyer.

You can upgrade EMR’s. You can upgrade your office equipment. You can hire a consultant later to revamp your office. You can hire a marketing company and a company to get you every healthcare contract that’s out there.

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