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Medical Practice Member Compensation Part One: Attract Talent; Advance Your Values; and Make Money

This series is the result of a collaboration between David Rintoul, a partner at ZNC, and Michael Hunter, a therapist who has owned and operated a mental health therapy practice, worked in other practices, and has been a consultant to mental health counseling practices.   David provides employment and business advice to ZNC’s medical practice advisory group.  While this article discussed these business issues in the context of mental health counseling practices, the principles apply to any group medical practice.  If you have any questions about the therapist reimbursement models discussed in these articles, David and Robert Cooper would be happy to discuss any questions you may have. 

Four Models for Clinician Reimbursement: Part One

What should a clinician expect to get paid if they’re joining a group practice? What should we pay a clinician if we’re building a group practice? If you’ve ever thought about bringing clinicians on board with you or you’re considering joining a group practice, the question can be a remarkably important one, both in terms of the kind of talent we can attract, and in deciding which practice we’d like to join if we’re not going to start our own.

In his consulting for group practices, Michael has talked to clinicians in all kinds of private practice environments that were organized in a variety of different ways: “I’ve heard complaints about every reimbursement model I’ve come across. I think the kind of reimbursement model that is right for you depends highly on the desires or needs of the individual clinician, but there’s a lot to weight out regardless of whether you’re a therapist shopping for a practice to join or a therapist bringing others on board.”

In this four-part series, we intend to look at four common models Michael has encountered for the reimbursement of clinicians and talk about the pros and associated with each clinician compensation model.

While this series is intended for clinicians throughout the country, regional differences exist, particularly with regard to proportion of private pay clients.  In most areas of the country, private pay clients make up a small proportion of the population most clinicians serve.  In a Fairfield County mental health counseling practice, and the rest of Connecticut, Westchester County and other New York suburbs, and in California, many patients will be private pay, and many clinicians in these areas do not accept insurance.  Throughout the series, David will discuss how the presence of a significant portion of private pay clients influence your choice of a clinician compensation model.

As you are reading about these models, you may be thinking how are you going to determine which is right for you and your practice.  Ultimately, what choice you make depends on your values: what behavior do you value – that is, what behavior do you want to encourage by providing a financial incentive for it; and conversely, which behavior to you want to discourage?  For instance, is developing a practice that has a strong collective interest your primary goal, or do you think the practice will be stronger if each practitioner focused on his or her own practice?    As you review each of these models, think about what behavior each model will encourage, and how that fits into your vision for your practice.  You can then pick the option that best suits your values and objectives.

Percentage-based models seem to be the most common for group based settings, though there is quite a bit of variation individually in how people implement these in practice. The premise of these models is that the clinician gets paid a certain percentage of what is paid to the practice itself for each claim. In most cases, the clinician is paid after the practice is paid, both because the money isn’t available prior to that time, and the percentage cannot be calculated without knowing exactly what insurance is or is not going to pay on any individual claim

What percentage of the claim is being reimbursed to the clinician often depends greatly on what the practice itself offers to the clinician in the way of support, referrals, or supplies and space. The more a practice does for you, the lower your percentage typically is, because they’re spending more money on you. Michael seen rates that vary widely from about 40% all the way up to 60% or so at the high end.

Pros: Clinicians that we’ve spoken to over the years generally prefer the percentage model to all others, so if you want to offer a model that has wide appeal, this one is generally familiar to clinicians and is the one that most clinicians tend to favor. In addition, as a potential benefit to clinicians, many practices will offer rewards for volume, where the percentage can go up if the clinician hits a certain case load target for the month.  Also, having the percentages paid after receipt of the funds by the practice encourages clinicians to collect their receivables, and not to do work that the practice won’t be paid for.  From the practice’s standpoint, you don’t pay the clinician until you get paid, so the risk of having a great financial outflow before you receive the money is lower. It also simplifies the accounting, since uncollectable receivables don’t need to be charged back to the clinician.  For the clinician, provided that you can manage what kinds of insurances you accept, this can be a lucrative model for you. From the practice’s point of view, because this is an appealing form of reimbursement to clinicians, it is sometimes easier to have a bare-bones model in which the clinician is doing most of their own work and providing their own supplies and support, which costs the practice less (and involves less of your time as the business owner).

Cons: Clinicians generally prefer this model even when it is not in their best financial interest to do so. Due to the low reimbursement rates of many insurers, clinicians end up making significantly less than they think they do. Michael has had a number of conversations with clinicians in which we figured up their hourly average (based on what they were actually getting paid), and they were surprised at how little they were getting paid per hour overall. Feelings of being treated inequitably aren’t uncommon among practitioners I’ve talked with in these settings also for a couple significant reasons.

First, if new clients coming into the practice aren’t somehow being distributed in a deliberate and conscious way, individual clinicians can end up with patients who have lower-paying insurance, and can become resentful.

This happened to a friend of Michael’s who eventually left a practice because he believed he had intentionally been assigned patients with claims that had lower insurance reimbursement rates than those given to other clinicians.  Whether it was intentional or not, this perception led to the practice losing a clinician.

Second, this model also can set up inherent conflict between office staff and clinicians, especially where unpaid claims are concerned. Some clinicians might not feel like the office staff is doing enough to resolve their claims and become frustrated if they see that claims go unresolved for an extended period of time.

Most of the time the percentage model also requires the clinician keep track of charges and payments to make sure the clinician is being paid accurately. Most individuals Michael has dealt with who are paid by the percentage model often feel as though they never quite know what they’re going to make each month.

The percentage model also discourages development of a cohesive group practice.  There is no direct reward in this model for activities that benefit the practice in general, such as general marketing of the practice such as writing for a website, cross-marketing of other clinicians’ practices who may have different areas of concentration, or firm administration.  You may have enlightened clinicians who will realize the benefit of these actions.  But, we don’t have to tell you that the less direct financial incentive for a behavior, the less likely it is that the behavior will occur.

Finally, one additional drawback is that practices that offer comprehensive services to make a clinician’s life easier can lose out to an office that offers few services but has a higher reimbursement rate.  But, having an office with an effective and diligent billing staff can yield more revenue than another office with a higher percentage but an ineffective billing department. This model often makes real apples-to-apples comparisons of private practices very difficult because it’s hard to put a dollar amount on certain amenities that private practices might offer. In this respect, practices that may not necessarily be as responsive to the needs of their clinicians can get rewarded over practices that offer far greater support in other non-financial forms. It also may unintentionally incentivize a practice to invest less in quality control measures for the practice as a whole, as offering a higher percentage means being able to invest less in ensuring that the practice’s paperwork and other essential practices are up to par.

There are also particular legal risks with this option from an employment law standpoint.   Each state’s employments laws vary greatly, so we can only provide a general indication here, and you should only rely on advice from an employment lawyer admitted in your state.  Also, the issue of employee versus independent contractor status is a complicated issue that is beyond the scope of this article.  But generally, an arrangement to share a percentage of revenue is likely to be considered to establish an employment relationship between the clinician and the practice.   If the owner sets prices to be charged patients, and has any control of the methods a clinician uses or the quality or nature of the clinician’s professional work, that clinician is likely to be considered an employee.  That means you have potential liability for payroll taxes, unemployment taxes, and workers compensation premiums, and will be subject to employment laws such as fair employment practices, family and medical leave, and wage and hour regulation.  If you are going to try to avoid these liabilities by treating the clinician as an independent contractor, we strongly recommend you speak with an experienced attorney admitted to practice in your state, as it can be quite difficult to establish independent contractor status for all purposes.  An upside of an employment relation is that if the owner wants to terminate the relationship with a clinician, an employee is much easier to get rid of than a tenant.

Given all of these potential cons, this particular model still enjoys its place as the favorite among most practitioners in the private practice community and is certainly the most common in our experience