How Much Does It Cost to Start a Private Practice in Mental Health?
- Neela Thambirajah
- 2 days ago
- 7 min read
Wondering how much money you need to start a private therapy practice? We outline some of the costs of launching a private practice and how to do it in a smart, fiscally responsible way.
At Healthcare Capital Advisors, we support mental health providers every day as they navigate the transition from employee to entrepreneur. One of the most common questions we hear is: “How much money do I need to start my own private practice?”
The answer depends on your location, business model, and goals, but here’s a breakdown of typical startup and monthly costs to keep in mind as you build your practice.
Legal Matters & Insurance
Legal Matters
We recommend that you start by forming a legal business entity, such as an LLC, limited partnership, or corporation, to protect your personal assets. The cost of formation will vary depending on the type of entity and your state’s requirements.
A healthcare or business attorney can guide you through the filing process and ensure your formation documents are completed correctly. They can also help draft essential legal documents for your practice, such as confidentiality agreements, informed consent forms, and client release forms, all of which are important for compliance and risk protection.
Once your entity is established, you’ll need to apply for both an EIN (Employer Identification Number) and an NPI (National Provider Identifier). These are essential for billing and tax purposes, and both are free to obtain.
What is an NPI and Why Do You Need One?
If you’re a healthcare provider or running a healthcare organization in the U.S., you’ll need a NPI. The NPI is a unique 10-digit number assigned to you by the National Plan and Provider Enumeration System (NPPES), which is run by the Centers for Medicare & Medicaid Services (CMS).
Why is this important? If you plan to bill Medicare, Medicaid, or other health plans, you are required to have an NPI. It’s used to identify you or your organization in all standard healthcare transactions, such as claims, referrals, and eligibility checks.
There are two types of NPIs:
Type 1 NPI: For individual healthcare providers (like solo therapists, psychologists).
Type 2 NPI: For organizations or group practices (like clinics or group practices with employees).
If you intend to get paid by Medicare or Medicaid, or work with insurance companies, you must apply for an NPI through the NPPES website. Without it, you won’t be able to submit claims or receive reimbursement.
Even if you’re not taking insurance, it’s helpful to create a CAQH profile. It’s a centralized credentialing database that many insurance panels and healthcare organizations use to verify provider information. Having a profile set up in advance can save time later if you decide to enroll with payers.
Tip: If you’re a single-member LLC or “disregarded entity,” you can operate using a Type 1 NPI. However, if you decide to hire employees, you’ll need to obtain a Type 2 NPI, since your business would then be considered a group practice, and you’d want employee claims to be associated with the business
Business License
Your therapy practice will only need a business license if your state, county, city, or municipality requires it. Requirements vary by location, so it’s important to check with your local licensing authority.
Clinical Supervision
In some states, clinical supervision may also be required, especially if you’re not independently licensed. Be sure to confirm your state’s regulations before seeing clients.
Estimated Legal Costs:
EIN, NPI, and CAQH Profile: Free
Practice Legal Documents: $500 - $2,500
Business Entity Formation & License: ~$100–$2,000 (varies by state)
Clinical Supervision: Varies (only required in some states)
Insurance
There are two primary types of insurance to consider: general liability (e.g., slip and fall claims) and professional liability (e.g., malpractice claims). If you're operating under a separate business entity like an LLC, you might wonder whether you need coverage for yourself or the business entity. In most cases, it's recommended to carry professional liability insurance for both you as an individual clinician and your LLC, so that both are protected in the event of a claim.
Estimated Insurance Costs:
Malpractice insurance: $450–$800/year
General liability: $300/year
Some popular malpractice insurance providers include:
Tip: When shopping around for malpractice insurance, make sure you receive quotes for the same policy limits and policy form (occurrence vs. claims-made) so you can compare them accurately.
Office Space (Optional)
As you begin offering services, one key decision will be whether to operate virtually or in person. In your first year, it may be more cost-effective to offer virtual sessions only, avoiding the overhead of renting physical space. However, as your practice grows and your caseload increases, adding in-person services can become a strategic advantage. Not only can it differentiate you in a competitive market, but it may also open the door to new referral sources who prefer or require in-person options.
Estimated In-Person Therapy Costs:
Renting your own office: $800–$3,000/month
Subletting part-time: $100–$800/month
Estimated Virtual Therapy Costs:
Technology and subscriptions: $100–$500/month, but many practitioners start with lower or no-cost options on national platforms to minimize initial expenses.
Tip: Consider starting part-time in a shared office or subletting on evenings and weekends. You can also work from a home office and deduct expenses on your taxes when appropriate.
Credentialing (Optional)
If you decide to accept insurance, you’ll need to go through a process called credentialing with each insurance company. This can be done yourself or through third-party services that handle credentialing and billing on your behalf. We can also support you through the process.
Most insurance companies provide clear, step-by-step instructions for joining their panels. While the process isn’t necessarily complicated, it can be time-consuming and tedious, and following up with insurers often feels like a full-time job.
Estimated Credentialing Costs:
3rd-party Credentialing Services: $500–$1,000 per application
Tip: Whichever route you choose, ensure that the company managing your credentialing is experienced in negotiating reimbursement rates, as insurance companies often start with very low offers.
Practice Management & Billing Tools
Electronic Health Record (EHR)
When selecting an EHR system, choose one that's specifically designed for mental health practices. Many popular EHR platforms are built for general medical practices or multi-specialty clinics (like physiotherapy or massage), which means you may end up paying for features you don’t need and won’t use.
Instead, focus on finding an EHR that aligns with your practice's approach. A mental health–focused platform will better support your clinical and administrative workflows, ultimately saving you time in the long run.
Key Factors to Consider When Choosing an EHR/EMR:
Ease of Use - Look for a platform that is intuitive and easy to navigate. It should also integrate well with other systems, allowing for secure data sharing across providers as you grow.
Security & Privacy - Mental health data is highly sensitive. Make sure the EHR offers strong security features, HIPAA compliance, and robust privacy controls to protect your clients’ information.
Mental Health Functionality - Choose a solution that supports your day-to-day workflow. This includes features like: Clinical documentation tailored for therapy
Appointment scheduling and reminders
Progress notes and treatment planning
Insurance billing or claims submission (if applicable)
Ultimately, the best EHR is the one that fits your practice’s size, style, and services, and helps you spend less time on admin and more time with clients.
Billing
Some clinicians choose to handle their own billing to save on costs, while others prefer to outsource it to protect their time and focus on client care.
A full-service, end-to-end billing company can manage nearly every aspect of your revenue cycle, including:
Insurance eligibility checks
Claim submission and payment posting
Denial resolution and appeals
Responding to patient billing questions or disputes
Generating and sending patient statements
Following up on unpaid balances
Escalating delinquent accounts to collections (at your discretion)
In short, a billing service can manage the entire revenue collection process for your practice in exchange for a percentage of your collections. This can be especially valuable as your caseload grows and administrative tasks become more complex.
Estimated Practice Management Costs:
EHR software (e.g., OpusEHR): $39–$80/month per user
Billing services: 6–9% of insurance collections
Credit card processing: ~2.7% per swipe
Tech & Communication
If you use Zoom’s basic free account, be warned that it is not HIPAA-compliant. You’ll need to purchase a business Zoom account and set it up correctly for healthcare use.
For HIPAA-compliant email, you can use platforms like Outlook for Business or Google Workspace, as long as you have a Business Associate Agreement (BAA) in place.
Tip: If clients choose to communicate with you over email, be sure to have them sign a “Consent to Email Communication” form. This form should clearly outline the risks, explaining that email is not the most secure method and may expose sensitive health information.
Estimated Tech & Communication Costs:
Zoom for Healthcare or teletherapy phone lines: $10–$25/month
HIPAA-compliant email (e.g., Outlook, G-Suite) + BAA: $50/year
Internet: $70–$100/month
Website & Marketing
You may not need a full website when you're just starting out, but it’s easier than ever to create an attractive and affordable one using platforms like Wix or Squarespace.
At a minimum, we recommend creating a Psychology Today profile. It’s one of the easiest ways to start receiving referrals, and many therapists find it’s well worth the investment. In some cases, you may be eligible for a free trial period through a referral from a colleague or your liability insurance provider (see above).
Many clinicians build their client base through directory listings and insurance panels. Its a simple, cost-effective strategy early on.
Estimated Website & Marketing Costs:
Custom Domain: $5/year
Website (Squarespace, Wix): $16–$30/month
Psychology Today listing: $30/month (get a referral from a friend for free months)
Basic branding, printed materials, etc.: ~$50–$500 utilizing AI tools + Canva
Tip: Focus on local SEO (blogs like this help!) or build referral networks through relationship-based marketing.
Admin Support (Optional)
Gradually building a support team can help you scale your caseload while avoiding burnout.
As your practice grows, consider bringing on help to manage tasks like:
Scheduling intakes, new client calls, and regular appointments
Notifying you when a client arrives
Handling cancellations or rescheduling, especially if you're unwell
Managing paperwork or administrative forms
Even part-time or virtual support in these areas can free up your time and reduce the mental load of running a practice on your own.
Estimated Admin Costs:
Virtual assistant or scheduler: From $500/month
Full-time admin: ~$30,000/year
Tools like OpusEHR often include built-in scheduling, credit card processing, and reminders.
Final Thoughts: Lean Startup, Smart Growth
You can start a private practice for under $1,000/month by:
Subletting space or going virtual
Using low-cost tools like G Suite and OpusEHR
Managing your own marketing and billing
Focusing on referrals from Psychology Today and insurance networks
We’ve worked with solo clinicians, group practice owners, and private equity-backed behavioral health companies. If you're launching or scaling your practice, we can help you think strategically from day one.
Ready to Talk?
If you’re planning to launch your own behavioral health business, or need help troubleshooting the one you’ve already built, we offer startup and consulting support. Contact us today or email info@healthcarecapadvisors for a free consultation.