Key Takeaways
- Your business structure comes first.Illinois requires mental health providers to register as a PLLC or PC rather than a standard LLC or corporation, and the ownership must be structured to preserve independent clinical judgment. Getting this wrong at the outset delays IDFPR approval and complicates every document that follows.
- HIPAA, intake forms, and Good Faith Estimates protect the practice before the first client arrives.Written HIPAA policies, a Notice of Privacy Practices, and customized intake and informed consent forms are the baseline. Practices serving uninsured or self-pay clients must also issue Good Faith Estimates under the No Surprises Act, with specific content and disclaimer requirements.
- Telehealth, credentialing, and employment each carry their own Illinois rules.Telehealth is generally limited to clients in states where the provider is licensed, and insurance credentialing can take 90 to 180 days. Hiring brings worker classification rules and specific requirements if non-compete and non-solicitation provisions are used.
You have spent years developing your clinical skills. Now you’re ready to open your own practice. You begin by considering your ideal location, target client base, your marketing approach, and the physical space.
However, starting a mental health practice in Illinois requires more than your clinical expertise and initial business plan. It also requires the right legal foundation. Before seeing the first client, licensed psychologists, clinical social workers, and therapists in Illinois need to complete the legal groundwork.
In this article, we provide a checklist that walks through the essential legal steps you need to complete before starting a mental health business as well as how Jackson LLP Healthcare Lawyers can guide you through each step.
Seven Legal Compliance Steps for Starting an Illinois Mental Health Practice
Step 1: Choose and Form Your Business Entity
First, decide whether to operate within a legal business entity or as a sole proprietor. If your goals include scaling your business, building a brand, maintaining a full client schedule, and protecting your personal assets, forming an entity is the better option.
Illinois requires mental health providers to register as a professional limited liability company (PLLC) or professional corporation (PC) rather than a standard LLC or corporation. Without proper IDFPR entity registration, your application will be denied.
You’ll also need to abide by the corporate practice of medicine doctrine, which governs who may own a healthcare practice as well as the requirements for properly structuring business arrangements (to preserve independent clinical judgment).
Step 2: Ensure HIPAA Compliance Before You See Your First Client
Protecting your clients’ personal information starts with the right written policies. Under HIPAA, therapists must maintain the privacy and security of a client’s protected health information (PHI) transmitted electronically. Whether or not you use an electronic health record platform, written HIPAA policies and procedures are essential.
To ensure HIPAA compliance, you’ll need a security policy covering how PHI is stored and transmitted, a breach response procedure, and a written Notice of Privacy Practices for each client. Illinois therapists will also need to comply with the Illinois Mental Health and Developmental Disabilities Confidentiality Act, which imposes additional confidentiality obligations on therapists’ management of mental health records.
Step 3: Develop Intake Forms with Specific Policies
Intake forms are often a client’s first encounter with your practice’s written policies. These documents should be easy to read and highlight your practice’s specific policies regarding conduct, communications, payment, and informed consent. If your practice provides telehealth services, your intake forms should address those policies as well. Additionally, intake forms should include a client acknowledgment of receipt of your Notice of Privacy Practices.
Informed consent should have its own clearly marked section and cover the nature of your services and the benefits, risks, and alternatives. If your practice treats minors, Illinois imposes additional obligations regarding informed consent and record access.
Do not use templated consent and intake forms pulled from electronic health records systems (EHRs). While it may seem like an easier and cost-effective route, template forms from EHRs carry risks that include:
- Not accounting for state-by-state requirement differences. For example, most states have mandatory, state-specific reporting requirements.
- Outdated requirements.
- Missing required client consents.
Customized forms, drafted by an attorney, are essential for comprehensive compliance.
Step 4: Provide Good Faith Estimates for Uninsured or Self-Pay Clients
A Good Faith Estimate (GFE) is required under the No Surprises Act, which came into effect on Jan. 1, 2022. The Act protects clients from surprise medical bills for specific types of in-network non-emergency services, out-of-network services, or uninsured care, making GFEs a legal requirement for independent mental health practices.
If the client is uninsured or electing to self-pay, a GFE is required. The GFE should include:
- The client’s name.
- The client’s date of birth.
- Your NPI.
- Your Tax Identification Number (TIN).
- All expected services to be provided to the client, with diagnosis and service codes.
- Expected charges for each service.
- Specific disclaimers stating that final charges may exceed the GFE, that the GFE itself is not a contract, and the client’s right to file a dispute.
If the difference between the GFE and the actual bill exceeds $400, the client can file a dispute with the U.S. Department of Health and Human Services (HHS).
Step 5: Telehealth Compliance Requirements
To provide telehealth services, an Illinois therapist must be licensed in the state where the client is located at the time of the session. Treating a client in another state generally requires a license in that state.
Licensing compacts such as PSYPACT allow therapists licensed in one member state to treat clients in other member states. Some states, such as Florida, permit therapists to treat out-of-state clients after completing a separate application.
The same clinical and documentation standards apply whether you see a client in person or via telehealth. This includes informing clients of telehealth risks and limitations and documenting the disclosure in your intake forms.
Step 6: Obtain Your NPI, Malpractice Insurance, and Insurance Credentialing
Before seeing your first client, you’ll need to obtain or update your National Provider Identifier (NPI) number. Individual providers require a Type 1 NPI, whereas group practices will need a separate Type 2 NPI registered to the PLLC or PC.
Additionally, you will need to secure professional liability (malpractice) insurance that covers your practice structure and the specific services you provide.
If you plan to accept insurance like Blue Cross Blue Shield PPO or Aetna, credentialing with each payor is a separate process that can take 90 to 180 days or more. Starting early is essential to avoid gaps in reimbursement when you open.
Practices that enroll with Medicare, Medicaid, or other federal payors take on additional compliance obligations, including a written fraud, waste, and abuse prevention plan.
Step 7: Develop Employment and Independent Contractor Agreements
When your practice is ready to hire, each worker must be classified as either an employee or an independent contractor. Getting this right matters.
- In an employment relationship, the practice controls the employee’s work, including the hours worked, the clients assigned, and how the work is performed.
- By contrast, independent contractors set their own schedules, determine how they perform their work, and are not subject to the practice’s day-to-day supervision.
Misclassification can lead to costly disputes and investigations from the Illinois Department of Employment Security.
Address non-solicitation and non-competition provisions in any employment or contractor agreement. Illinois law sets specific threshold requirements for these provisions to be enforceable. For example, under the Illinois Freedom to Work Act, employers that impose restrictions on workers who do not meet the threshold requirements face civil fines of $5,000 or more per violation.
How Jackson LLP Can Help Start Your Illinois Mental Health Practice
Jackson LLP works with mental health providers across Illinois at every stage of practice formation. Whether you are opening a new healthcare practice or seeking guidance for an existing one, we can draft or review:
- PLLC corporate formation
- Contracts and legal agreements
- HIPAA policies and procedures
- Intake forms
- Telehealth setup and compliance
- Good Faith Estimates
- Insurance and credentialing requirements
- Employment and independent contract agreements
- Multi-state practice expansion
To get started, book a free 15-minute consultation. We will identify the legal work your practice requires and follow up with a quote.
Free Attorney Consultation
Starting a Mental Health Private Practice FAQs
Do I need a legal business entity when starting a mental health business in Illinois?
Not necessarily. However, forming a PLLC or PC is recommended if you want to grow your business, hire employees, build your brand, and protect your personal assets.
What does HIPAA compliance require for Illinois therapists?
When opening a private practice, you need written policies and procedures covering how protected health information (PHI) is stored and transmitted, along with a breach response procedure and a Notice of Privacy Practices provided to each client. Illinois therapists must also comply with the Illinois Mental Health and Developmental Disabilities Confidentiality Act, which imposes additional obligations for managing mental health records.
What should intake forms include for a mental health practice?
Intake forms should cover your practice's policies on conduct, communications, payment, and informed consent, along with a client acknowledgment of your Notice of Privacy Practices. They should also address Illinois-specific requirements and, if applicable, telehealth provisions. Avoid templated intake forms, which can put your practice at risk.
What are Good Faith Estimates and when are they required?
A Good Faith Estimate (GFE) is a written estimate of expected charges that practices must provide to uninsured or self-pay clients under the No Surprises Act. The GFE must include the client's name and date of birth, your NPI and Tax Identification Number, a list of expected services with diagnosis and service codes, expected charges, and specific statutory disclaimers. If the final bill exceeds the GFE by more than $400, the client may file a dispute with the U.S. Department of Health and Human Services.
Can I provide telehealth to clients in other states?
Generally, no, not without additional licenses. An Illinois therapist must be licensed in the state where the client is physically located at the time of the session. Licensing compacts such as PSYPACT allow therapists licensed in one member state to treat clients in other member states, and some states, such as Florida, permit out-of-state treatment after a separate application. Before treating any client outside Illinois, confirm the licensing requirements of that state.
What is an NPI number and do I need one?
A National Provider Identifier (NPI) is a required identifier for healthcare providers. Individual providers need a Type 1 NPI, while group practices need an additional Type 2 NPI registered to the entity.
How far in advance should I start the insurance credentialing process?
As early as possible. Credentialing with insurance payors can take 90 to 180 days or more, so starting early helps avoid gaps in reimbursement when you open.
What is the difference between an employee and an independent contractor in a mental health practice?
In an employment relationship, the practice controls the employee's work, including hours, assigned clients, and how the work is performed. Independent contractors set their own schedules, determine how they perform their work, and are not subject to day-to-day supervision. Misclassification can lead to costly disputes and investigations by the Illinois Department of Employment Security.
