If you are a mental health therapist starting a private practice and you recently formed an LLC, you have probably run into the question: What is the difference between NPI Type 1 and NPI Type 2, and do I actually need both?

This confusion is incredibly common, especially for therapists transitioning from W-2 or group settings into independent private practice.

To really understand the answer, it helps to know why NPIs exist in the first place and what problem the government was trying to solve when they created the NPI system.

Why the NPI Standard Was Created

The National Provider Identifier (NPI) was established as part of the HIPAA Administrative Simplification provisions in the late 1990s.

Before NPIs existed, healthcare providers were identified by a messy patchwork of numbers:

• Different IDs for different insurance companies

• Different IDs for billing vs credentialing

• Social Security Numbers being used in claims and enrollment

This created massive inefficiencies, privacy risks, and billing errors across the healthcare system.

To fix this, the federal government mandated a single, standardized identifier system that would:

• Uniquely identify healthcare providers nationwide

• Reduce administrative overhead for payers and providers

• Improve data accuracy and claims processing

• Reduce reliance on SSNs in healthcare transactions

The result was the NPI standard, administered through NPPES by CMS.

Importantly, the government recognized early on that individual clinicians and healthcare organizations serve different roles, which is why NPIs were split into two types, not one.

The Core Reason behind NPI Type 1 vs Type 2

The government designed NPIs around two fundamental questions:

• Who provided the healthcare service?

• Who is legally and financially responsible for billing and payment?

Those are often not the same entity.

That distinction is exactly why NPI Type 1 and NPI Type 2 both exist. For example if you were working in a group prior, you the rendering provider need to be identified with an NPI Type 1, but the insurance company receives claims from the group practice you were working at which is identified with an NPI Type 2.

What Is an NPI Type 1?

An NPI Type 1 identifies an individual healthcare provider.

For therapists, this means:

• You as a licensed clinician

• Your professional identity

• Your role as the rendering provider

This number follows you throughout your career, regardless of:

• Where you work

• Whether you are solo or in a group

• Whether you change practices or states

From the government’s perspective, the NPI Type 1 answers: "Who personally delivered the clinical service?"

What Is an NPI Type 2?

An NPI Type 2 identifies an organization that delivers or bills for healthcare services.

This includes:

• LLCs and PLLCs

• Group practices

• Clinics and professional entities

It is tied to:

• A legal business name

• An EIN

• A practice address

From the government’s perspective, the NPI Type 2 answers: "Which organization is billing for and receiving payment for this care?"

Why This Matters for Therapists Forming an LLC

When you form an LLC, you are creating a separate legal entity from yourself as an individual.

The NPI system was explicitly designed to support that separation.

If you bill insurance under your LLC:

• The government expects the organization to be identifiable

• Insurance companies expect a billing provider NPI

• Payments are expected to flow to the business, not the individual

That is what the NPI Type 2 enables.

Do Therapists With an LLC Need an NPI Type 2?

In most cases, yes.

You likely need an NPI Type 2 if:

• You formed an LLC or PLLC

• You bill insurance under your practice name

• You use a business bank account

• You enroll your practice with insurance payers

• You plan to enroll in Medicare under your entity

Even single-member LLCs fall squarely into the use case the NPI Type 2 was designed for.

Without it, payers often default to treating you as an individual-only provider, which defeats the purpose of having an LLC. The insurance company would be paying you, not your LLC, which means you would lose all LLC protections.

Final Thoughts

The difference between NPI Type 1 and NPI Type 2 is not arbitrary. It reflects a deliberate government effort to modernize healthcare administration, reduce errors, and protect provider identity.

If you just formed an LLC for your therapy practice, applying for an NPI Type 2 is not just a bureaucratic checkbox. It is aligning your practice with the way the healthcare system was intentionally built to work.

Understanding this early saves significant cleanup later.