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Starting your own rehab therapy clinic is a big step, but without proper legal groundwork, it can create more risk than reward for PTs, OTs, and SLPs.
If you’re a physical therapist (PT), occupational therapist (OT), or speech language pathologist (SLP), starting your own practice brings a rewarding kind of independence. But between patient care, billing, and compliance, the legal responsibilities of ownership can feel overwhelming. If you’re setting up your own practice, here’s what to consider to protect your license and your livelihood from day one.
Start by Reviewing Your Current Contracts
Before taking the leap, take a close look at any contracts from your current or prior roles. Many employment and independent contractor agreements contain restrictive covenants, such as non-compete clauses, non-solicitation clauses, or non-disclosure agreements, that may continue to bind you even after you’ve left.
There are two common misconceptions we hear about non-compete agreements in rehab therapy. The first is that they don’t apply to therapists at all. That misunderstanding likely stems from peer conversations, recruiter blogs, or confusion with states like California, where non-compete agreements are broadly unenforceable. However, in most states, rehab therapists can be bound by non-compete clauses, as long as the terms meet legal standards, such as being reasonable in scope, duration, and geography.
The second misconception comes from national headlines about the FTC’s 2024 rule banning most non-competes. While the FTC did finalize such a rule, its enforcement is currently blocked by a federal court, and the current administration is not expected to appeal. For now, enforceability still depends entirely on state law.
Even if your non-compete seems overly broad or difficult to enforce, violating it can still result in legal threats or lawsuits. Before you move forward, have a healthcare attorney review your agreements and assess the real-world risks of starting your own practice.
Also, take a close look at any non-solicitation clauses or non-disclosure agreements, which may restrict your ability to market to past clients or hire former colleagues. These provisions can be just as limiting and should be reviewed with an eye toward both legal compliance and practical strategy.
Choose the Right Legal Entity for Your Practice
A common first question from new practice owners is: “Do I need an LLC?” The short answer is no, you don’t need a corporate entity to practice legally. Your license alone gives you the authority to treat patients. A sole proprietor can legally open and operate a rehab therapy practice without a corporate entity.
So why do so many people form corporate entities, such as LLCs? A corporate entity creates a legal separation between you and your business. If it’s formed correctly and maintained properly, it can limit your personal liability for business debts or legal claims unrelated to your clinical care. But that protection isn’t automatic—it depends on how well you observe corporate formalities.
This includes signing contracts in the business’s name, maintaining separate bank accounts, avoiding personal use of business funds, and presenting yourself as a business entity, not an individual. These are a few of the details that preserve your “corporate veil,” the liability protection you’re relying on to shield your personal assets.
Also, some states require that licensed professionals form a PLLC or PC rather than a standard LLC. Other states allow more flexibility. If you’re offering both licensed services (such as therapy) and unlicensed services (like wellness or personal training), you may even need separate entities.
Keep in mind that forming a legal entity doesn’t protect you from claims of professional negligence. Whether you’re operating as a sole proprietor, LLC, PLLC, or anything else, you’ll still need malpractice insurance to cover liability related to your clinical care.
On the tax side, some practice owners eventually choose to have their LLC taxed as an S-Corporation to reduce self-employment tax. This can be a smart strategy. But note that an S-Corp is not a business entity, and it’s not something you need to decide before seeing your first patient. An S-Corp is simply a tax classification that an LLC or corporation can elect with the IRS. You can make that decision later, in consultation with your accountant, once you have real financial data to work from.
See our related video, “Do I need an LLC or an S-Corp?”
Bottom line: You don’t need an entity to get started, but if you do form one, ensure it aligns with your goals and is structured correctly. Let your clinical mission and business vision drive the decision, not assumptions or one-size-fits-all advice.
Watch Out for Ownership Pitfalls
For solo practice owners, ownership and control issues are usually straightforward. But if your business involves outside investors, physician co-owners, or shared income arrangements, the legal rules get more complex quickly.
Two key concerns to be aware of are the Stark Law and the corporate practice of medicine (CPOM) doctrine. While they come from different areas of law, both aim to keep patient care decisions in the hands of licensed professionals and prevent conflicts of interest tied to business arrangements.
The Stark Law is a federal rule that applies when physicians refer Medicare or Medicaid patients to a business with which they, or a family member, have a financial relationship. If you co-own your practice with a physician or rent space from one who also sends you patients, you’ll need to ensure the setup meets strict regulatory requirements.
CPOM doctrines, by contrast, are state-specific. They limit how and by whom a healthcare practice can be owned or controlled. These rules were originally written for medical practices, but some states, such as New York and California, also apply them to rehab therapy practices. If you’re in a CPOM state and bring on a non-clinical partner, accept investor funding, or use a management company that shares revenue or makes decisions affecting care, you may not comply.
These concerns don’t affect every practice, but if you’re structuring your business with a referring physician or with someone who doesn’t share the same license, it’s smart to consult a healthcare attorney before signing any contracts. Getting the structure wrong early on can lead to licensing issues, billing complications, or even forced unwinding of your business.
See our related video, “The Corporate Practice of Medicine in Illinois.”
Register the Right Identifiers
If you’re setting up an entity, you’ll need more than just a personal National Provider Identifier (NPI). You’ll also need to apply for a Type 2 NPI for your business itself. This is often required for billing, credentialing, and contracting with insurers.
If your practice name differs from your legal entity name, for example, if you’re “Sunshine Physical Therapy” instead of “Jessica Smith PLLC,” you’ll likely need to register a fictitious name or “doing business as” (DBA) with your state.
See our related articles, “EINs and NPIs Explained” and “Assumed Names vs. Legal Names in Healthcare.”
Don’t Rely on Generic Consent Forms
Many new therapy practices start out using borrowed or template intake forms. While this might seem efficient, it can leave you exposed to legal risk if those forms don’t meet your state’s requirements or align with the services you’re offering.
At a minimum, your intake process should include the following:
- Informed consent for treatment, customized for your modality and setting
- Privacy disclosures and HIPAA acknowledgment
- Financial consent, including any policies about fees, cancellations, and out-of-network billing
- Telehealth consent, if you offer virtual visits, with a documented discussion of limitations and risks
One of the most common gaps we see is the use of a short, checkbox-style consent form for telehealth services. While convenient, that may not meet your state’s standard for informed consent, especially if it doesn’t explain technology limitations, patient responsibilities, or emergency protocols. Your documentation should reflect an actual discussion, not just a signature.
Some states also require additional patient notices related to treatment risks, patient rights, or marketing communications. These requirements may vary depending on your location, license type, or whether you treat minors.
Consent forms can also cause problems if they are too vague or overly broad. A generic release might appear to authorize disclosures that violate HIPAA, or a payment agreement might conflict with your payer contracts. If a patient later disputes a charge or files a complaint, unclear language in your forms could leave your practice vulnerable.
If you’re unsure whether your intake packet covers all the bases, a healthcare attorney can review your forms and help you fill any gaps before they become a liability.
See our related article, “Is It Safe to Use Templates for Patient Forms? What You Need to Know Before You Decide.”
Take HIPAA Seriously from the Start
We often hear from new practice owners who assume that HIPAA doesn’t apply to them, especially if they’re solo, out-of-network, or operate on a cash-pay basis. But in most cases, that’s not true.
If you’re a healthcare provider who transmits claims electronically, or if you use a billing service, an EMR, or even certain third-party communication tools, you’re likely a covered entity under HIPAA. That means you’re responsible for following federal privacy, security, and breach notification rules.
Compliance starts with how you handle patient information. Are your records stored in a HIPAA-compliant system? Does your team have access only to what they need to do their jobs? Have you signed Business Associate Agreements with any vendors who might touch protected health information, such as your EMR provider, billing contractor, or marketing support?
HIPAA is also about how you interact with your patients. If someone asks for a copy of their medical records, you’re legally required to provide it in the format they request, within a reasonable timeframe, and at a reasonable cost. This right of access is one of the most common sources of complaints and enforcement actions, and it’s often overlooked by smaller clinics that don’t have clear procedures in place.
On the internal side, you’re expected to maintain written privacy and security policies, have a plan in place for handling a breach, encrypt any device that stores patient data, and ensure that your staff knows how to respond to an incident. This includes regular training for all staff members who work with patient records, including part-time and administrative staff.
It might feel like overkill when you’re just trying to get your practice off the ground, but HIPAA enforcement is real. Fines can reach up to $50,000 per violation, and corrective action plans can last for years. Small practices are not exempt, and being well-meaning is not a defense once an audit or complaint is triggered.
The good news is that HIPAA compliance is very manageable when you build it into your systems from the beginning. You don’t have to be perfect, but you do have to make a good faith effort to protect your patients’ information and respect their rights.
Know the Rules for Cash-Based Care
Some rehab therapists hope to sidestep insurance headaches by going fully cash-based. But if you treat Medicare beneficiaries, you can’t entirely avoid dealing with Medicare, even if you don’t accept it.
Unlike physicians, therapists can’t “opt out” of Medicare. That means you’re generally required to submit claims for any Medicare-covered services. The one exception is when a patient, on their own initiative, refuses to authorize billing. That refusal must be voluntary and well-documented.
To meet Medicare’s documentation requirements, many therapists work with a healthcare attorney to create a custom form to record that the patient voluntarily declined to have a Medicare-covered service billed. This documentation is essential, even if you do not participate in Medicare or any insurance plans.
You may have heard that HIPAA protects you from needing to bill in these scenarios. It doesn’t. HIPAA allows—but doesn’t require—disclosure of protected health information for billing purposes. It doesn’t override billing laws. This is a common source of confusion in rehab therapy practices, especially those that are new or self-pay focused.
Also note that if you’re operating on a cash-pay or out-of-network basis, you may be required to provide a Good Faith Estimate under the No Surprises Act. This applies to all uninsured and self-pay patients and must include an estimate of expected charges before care is delivered. The rule is designed to protect patients from surprise bills, and it applies to rehab therapists, including those in solo or boutique practices.
See our related article, “The No Surprises Act: A Primer for Independent Healthcare Practices.”
Avoid Pitfalls Around Referrals and Marketing
It’s tempting to get creative with partnerships, space rentals, or marketing agreements—especially when you’re just starting out. But if any part of the arrangement involves someone sending patients your way and getting paid because of it, you’re in risky territory.
This includes:
- Paying a percentage of your revenue to a gym or wellness center in exchange for referrals
- Offering bonuses or commissions for new patients
- Compensating marketers or influencers based on how many patients sign up
Even if no one intends harm, these arrangements can violate federal anti-kickback rules if they involve patients covered by Medicare, Medicaid, or other government programs. The Anti-Kickback Statute prohibits the offering or receiving of anything of value in exchange for referrals in federal programs. The penalties are severe, including fines, exclusion from Medicare, and even criminal charges. Similar arrangements can also trigger state laws on fee-splitting and patient brokering, which may apply even for cash-pay patients.
If a referral is involved and money is changing hands, seek legal advice before moving forward. There are legal ways to structure these relationships, but you must get them right from the beginning.
See our related video, “What is the Anti-Kickback Statute?”
Consider Telehealth Regulations
If your services include virtual visits, check your state’s telehealth laws. Some states allow full telehealth access from the first visit, while others require an initial in-person examination.
Regardless of location, PTs, OTs, and SLPs must meet the same standard of care as they would during an in-person visit. That includes ensuring patient safety, protecting privacy, and communicating clearly about the limitations of virtual care.
You’ll also need to use HIPAA-compliant platforms for telehealth and obtain specific informed consent that explains how telehealth works, its limitations, and how emergencies will be handled. A signature alone isn’t enough; you’ll need to document the conversation.
Additional Legal Pitfalls to Watch For
As you launch your practice, several other legal issues may surface, especially once you’re operational or expanding your team.
Enrollment vs. Credentialing Confusion
It’s easy to assume that once you’re credentialed as a therapist, your practice is ready to bill payers. But in some cases, your business entity must also be separately enrolled with insurers. This step is often overlooked and can delay payment or lead to unexpected denials. A billing expert or healthcare attorney can help make sure you’re set up correctly from the start.
Scope of Practice Uncertainty
Just because you’re trained in a service doesn’t mean your state allows you to provide it under your license. Dry needling, feeding therapy, and cognitive coaching are common areas of gray uncertainty. Review your state’s practice act before launching new services, especially if you’re branching into wellness or coaching.
Delegation and Supervision Requirements
If you plan to hire assistants, aides, or support staff, ensure you understand your supervision obligations. These vary by license type, payer, and state law. Improper delegation or billing for services provided by unqualified staff can lead to compliance violations or insurance clawbacks.
Get Legal Support
Opening a PT, OT, or SLP practice is a major milestone, but without the right legal foundation, it can become a liability. If you’re forming a new practice, reviewing contracts, or evaluating compliance, we’re here to help. If you operate in one of the states where we’re licensed, you can schedule a consultation to talk through your next steps.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
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