How to Transition From Insurance to a Cash-Pay Psychiatry Private Practice: A 6-Step Process

Making the leap into private practice can be daunting, especially if you’re accustomed to the stability of an insurance or agency job. If you are dreaming about transitioning to a cash-pay psychiatry private practice but aren’t sure where to start, this blog is for you.

If you are…

• Working at a part-time job while building your private practice on the side
• Working full time at an insurance or agency job and are thinking about starting a private practice
• Currently have an insurance private practice and want to transition to cash-pay
• A psychiatry resident or PMHNP finishing your education and want to start a private practice in the future

…then you are probably feeling overwhelmed with all the unknowns and “what if’s” of having a cash-pay private practice.

But the truth is that deciding to build a psychiatry private practice is more than just a leap of faith; it’s a financial balancing act that requires meticulous planning and analysis. If you’re like me, and you find reassurance in the clarity of hard numbers, I’ve got you covered. 

In this blog, I’d like to guide you through a comprehensive breakdown of how to evaluate your financial situation, and determine if (or when) the moment is right for you to quit your job and immerse yourself in the growth and development of your private practice.

Why Switch From Insurance to a Cash-Pay Psychiatry Private Practice?

The American Psychiatric Association (APA) now reports that 2 out of 5 psychiatrists experience professional burnout — that’s almost half of all practicing psychiatrists.

Do any of these sound familiar?

• Only being allotted 20-minute chunks per patient
• Having 3+ intakes booked with less than 1 day of notice
• Spending hours following stringent notes procedures, instead of using that valuable time to help patients or grow your clinical skillset
• Fighting with insurance companies about what qualifies as a serious illness for a patient to receive a specific medication
• Given no time to have noncontroversial conversations with patients about nutrition, exercise and sleep
• Feeling like a “cog in the machine” with zero control over your career 
• Having to chase down insurance claims to get paid… only to be compensated 40% of what your actual billing rate is

The truth is, there is a rising level of frustration and dissatisfaction among providers working in bureaucratic systems, and according to a recently published New York Times article, The Moral Crisis of American Doctors, it might be a bit more complicated than just “burnout.”

In a previous blog post, I wrote about which factors contribute to moral injury among psychiatric providers, and how you can avoid it and enjoy fulfillment in your career.

Basically, moral injury is caused by the lack of autonomy in treating patients the way that they need to be treated and in doing what we, physicians, are skilled at best. We are taken aback not by the long work weeks, but instead by a broken health care system that makes it practically impossible to properly care for our patients and that prioritizes profits over patients.

I’ve noticed that more and more psychiatric providers are leaving their jobs and turning away from bureaucratic systems to start their own cash-pay private practices, even those that have established and well-paying careers. I know this because they are applying to my career mentorship program and seeking guidance on how to build a private practice that puts the patient first, not corporate profits.

Psychiatric providers are realizing that transitioning from insurance to cash-pay has numerous benefits, such as:

• More autonomy in how you treat your patients and the type of modalities that you practice
• Less time spent on administrative work
• Smaller patient panel means you can connect with and treat each patient better
• The ability to set your own rates and work less while earning more
• Providing higher-quality, more personalized care (and practicing integrative psychiatry!)
• Reduced burnout and increased job satisfaction
• No more hassle with insurance reimbursement

So where exactly do you start if you want to make a career transition to a cash-pay psychiatry private practice?

Let’s get into it.

Start With a Side Job

Before you fully transition to a cash-pay psychiatry private practice, consider maintaining a part-time job for financial stability. When teaching psychiatrists and psych NPs in my mentorship program, I always emphasize the importance of having a safety net to ensure you can cover your expenses while focusing on building your practice. Ideally, commit 1-3 days a week to part-time work. This balance provides enough income to cover expenses without significantly hindering the focus on your practice.

Think of your side job like a trapeze artist’s safety net – it’s there to support, not to detract from the main act, which is your private practice. Your side job can help you make sound, fear-free decisions for your practice. 

A very important note about side jobs: overcommitting to various professional endeavors can dilute your focus. A short-term sacrifice in income and time may be necessary, but it’s for a significant long-term benefit: the successful establishment of your dream practice.

Evaluate Your Readiness to Cut Back Hours

If you’re working full time at an agency or insurance job, you will most likely need to cut back hours to have enough time to build your private practice. Expect to invest at least 15-20 hours a week into building your private practice.

From my experience coaching 200+ psychiatric providers in Dream Practice Academy, if you are able to put in ~15 hours/week, you can expect to launch your practice within 2-3 months. The more time you spend building and growing your practice in the beginning, the sooner you’ll be able to rely solely on your practice income and quit your old job altogether.

If you’ve started building your practice but are struggling to find time for marketing efforts and growing your private practice, ask yourself: What would stop you from cutting back the hours at your side job tomorrow?

1. If it’s finances, how much income do you need each month to cover your expenses? 
2. Instead of working your side job 4-5 days a week, can you cut back to 1-3 days a week?

If you have a few months of savings and can comfortably afford it, consider reducing your hours at your current job rather than quitting outright. Use the extra time to focus on building your private practice, especially on marketing efforts, even if you’re not yet seeing patients. Marketing is essential for attracting new clients!

P.S. Feeling overwhelmed with planning the finances for your private practice? you can use my Income Projection Spreadsheet to calculate your projected income and plan ahead for your private practice. Access the Income Projection Spreadsheet, along with a wealth of other private practice resources, in my free Dream Practice School community.

Now let’s get into the nitty-gritty details of and perform a financial analysis to know exactly when you can quit your side job.

The 6-Step Financial Process of Transitioning to a Cash-Pay Private Practice

At this point it’s possible that the thought of not having a steady income combined with the uncertainty of starting a business is starting to make your palms sweat and your eyes twitch from stress.

I highly recommend breaking it down by the numbers so you can see – pen to paper – what is realistic for you now, and how to start planning for this transition in the future. 

Step 1: Calculate your monthly income 

• When calculating your income, consider all sources, including your partner’s income if applicable. 
• Let’s say your monthly income is $5,000. 

Step 2: Calculate your practice’s monthly overhead

• Always be clear about your business expenses and make sure to count everything – softwares, credit card transaction fees, marketing costs, insurance, etc. 
• Let’s say your overhead is $500 (YES, you can start a minimum viable telepsych private practice at ~$500/month)  

Step 3: Estimate your living expenses 

• Include all your expenses here – mortgage, groceries, utilities, student loan payments, etc. 
• Let’s say your monthly living costs come out to be $6,000. 

Step 4: Income vs. expenditure

• Now deduct your overhead and living expenses from your income. In this example we came out with a deficit of $1,500.
• $5,000 – ($500+$6,000) = -$1,500

Step 5: Savings estimation

• Crucially, assess how many months of savings you have as a buffer.

Step 6: Evaluate the opportunity cost

• The ultimate goal is to ideally have your practice’s income exceed your expenses, allowing for savings growth. It’s okay to run a slight deficit initially, but ensure it’s manageable and not overly stressful. 
• The benefit of quitting your side job is the ability to focus on the practice. It also raises the stakes a bit which can be extremely motivating. Chances are, the more time you have to dedicate to your practice, the faster it’ll grow.

As you have more time to focus on building up your private practice, the deficit is going to quickly turn into surplus. 

For those with limited savings and a projected deficit upon quitting the side job, my advice would be to delay leaving the job until you’ve accumulated 3+ months of savings, or are generating more income in your private practice.

The truth is, if you don’t ever jump in with both feet, your practice is going to grow MUCH slower. Remember, your DREAM is having your own private practice, your side job really isn’t your passion or life goal. 

When I started my private practice I had ZERO side income. I just focused on seeing the patients I had and marketing to grow my practice. I think that’s part of the reason why my practice grew so fast — I didn’t have anything else distracting me.

You don’t have to be that extreme — just start by cutting back a few days. Just remember, the more time you devote to your private practice, the faster it will grow.

Regardless of the amount of hours you’re working at your side job, you want to be mentally fully committed.

Bonus strategy: How to Transition Patients From Insurance to a Cash Private Practice

There is one specific situation where I’ll sometimes recommend quitting your job and going all in on your private practice – and that’s if you have an insurance job (or insurance-based practice) and you think a certain percentage of your patients might want to follow you into a cash practice.

Let me give you some reassurance: the benefit of having an established patient panel at an insurance job is that many are likely to come with you to your practice, which means you don’t need to stress about finding new patients right away.

Having an established patient panel will make it much easier to start your private practice, since there is a greater chance these patients will follow you to your private practice. 

Transitioning Out of An Insurance-Based 1099 Contact or W2 Job 

Is it legal to tell patients where you’re going? Yes, as long as you don’t have a non-compete clause in your contract. A non-compete clause prohibits providers from actively recruiting patients from their institution to follow the provider elsewhere.

However, recently, the F.T.C. announced a new regulation called The Final Rule. This rule will ban non-compete agreements from restricting employees’ ability to work for rival companies, effective September of this year.

This is very exciting as it will benefit those that want to start building a cash-pay psychiatry private practice while still working at their agency or insurance job. You can read more about this upcoming change in this article.

Here’s how you can navigate this in the meantime: 

If your contract contains a non-compete clause, it’s crucial not to breach it by freely soliciting that information to the patient or encouraging them to join your private practice. At the same time, patients are autonomous individuals and can make their own decisions! During your patient’s last appointment, you can casually mention, “By the way, this will be my last appointment with you. I’ll no longer be working here.” They’ll likely ask why or where you’re going, giving you the opportunity to explain that you’re starting your own practice.

While you don’t need to explicitly say, “come to my private practice,” some patients may express interest. In this case, it’s important to make sure that your website appears in search results when they look for your name. Most patients will be curious and eager to learn more.

If your side job doesn’t have a noncompete clause, you’re free to inform patients about your private practice and ask if they’d like to continue working with you in that setting. If your side job accepts insurance and your private practice operates on a cash-pay basis, consider offering a temporary sliding scale to accommodate those patients. Just be sure to estimate the conversion rate of patients who will follow you and allocate enough time in your schedule to accommodate them.

You may be thinking: 

But how do I convince my patients to follow me to my private practice? What if they don’t understand the value of paying cash for my services if they can just use their insurance? 

Those are all very valid fears. 

If you have patients that like you and want to keep seeing you, it’s very likely that at least 25% of them would be willing to pay cash for your services. In fact, several members in Dream Practice Academy who have made this transition will see anywhere from 20-40% of existing patients transition to their cash-pay practices. 

My advice is to give your patients a letter (or email) and include the following information:

• State that you are leaving to start a private practice to provide better care for your patients.
• Include any additional offerings that you will include in your private practice that you don’t have the time for in this role, like therapy, nutraceuticals, comprehensive lab testing, etc.
• Offer a time-limited sliding scale (~6 months) to make the transition from insurance to cash smoother for them. Make sure the hourly rate you offer is around  double of what you are making at your current job. That way you can break even faster. Hourly rate = Monthly gross revenue / TOTAL work hours (this should include both clinical and admin time). 
• Appeal to your patients’ sense of fairness, and explain that you need to get out of the insurance system in order to provide your highest level of care. It’s very likely that they will understand and would rather pay you directly than throw money at some unknown large organization. 

Let’s look at an example scenario: 

Let’s say you make $150,000/year, work 40 hours/week, and have 500 patients on your panel. 

That’s $12,500/month / 174 hours (50*4.33 AVG weeks in a month) = $71.80/hour.

Let’s say you’d like to charge $315/hour in your private practice, but to make the transition easier for your existing patients, decide to offer a 6-month sliding scale rate of $215/hour. 

• If 5% of your patient panel followed you, that would be 25 patients. 

• If 10% of your patient panel followed you, that would be 50 patients. 

• If 20% of your patient panel followed you, that would be 100 patients. 

That means that you can immediately replace half of your income working significantly less hours – all before you’ve even started marketing!

To see this play out in a real-life example, the below post is from a PMHNP in Dream Practice Academy who followed this exact strategy, and ended up converting 30% of patients from his insurance job to his cash-pay practice! 

Transitioning Your Insurance Practice to a Cash-Pay Model 

This approach is also beneficial if you currently have an insurance private practice and want to transition your patients to cash-pay.

And please note, you do not need to have pre-existing relationships with patients to build a successful private practice. Sure, having an immediate referral source and patients who already know you and want to make the transition is great, and make the financial transition much easier, but it’s not a factor that determines your long term success. 

In fact, I work with several providers in Dream Practice Academy who are starting telepsych private practices and are planning to work with an entirely different patient population than they do in their current insurance-based practice.  It is absolutely possible! 

Are you ready to take the leap into Cash-Pay Psychiatry Private Practice? 

Remember, courage isn’t the absence of uncertainty; it’s about triumphing over it.

Having mentored 200+ psychiatric providers on starting and growing their cash-pay private practices, I can confidently say that with careful planning and a clear understanding of your financial landscape, you will be well-equipped to navigate the transition to cash-pay.

…From those that started the transition to cash-pay while still working in their insurance jobs, but are now 100% all-in on their cash-pay private practice:

This is another success story of a PMHNP in my mentorship program who was able to phase out of his insurance-based private practice and go from seeing 25 patients/day to making $30k/month while working 25 hours/week.

…to those who started from scratch, took the leap into private practice, and are now reaping the rewards:

Now that you’re ready to start mapping out the financial opportunities for your cash-pay psychiatry private practice, I can predict what will likely come next: internal doubt.

Before you let those doubts take over, let me redirect you on how to tune out the haters, ignore your internal doubts, and follow your private practice dreams 🙂 

Join My Free Dream Practice School

Ready to ditch the broken healthcare system and unlock your full career potential? Enter your email below to get your exclusive invitation to my new 6-step mini-course and community designed to teach you the fundamentals building your dream private practice.

By the end of the course you will have a crystal clear picture of what it means to be an integrative psychiatrist entrepreneur with your own cash-pay psychiatry private practice – and how to make it happen. You’ll even get access to some of my protocols!

I hope to connect with you soon!