If you’re a clinician working as an associate in a group practice, or considering joining such a practice, you’re probably asking the wrong question on how you’re paid. It’s not your fault, since it’s based on how so many group practices have been operating for decades. Still, it doesn’t serve you well, and below I discuss why, and what you should do instead.
The Question of Your Split
When my wife Risa worked as an independent contractor (IC) in someone else’s group practice, they paid her 50% of session fees. That was about average for group practices in our area at the time. Since then, I’ve heard of practices paying ICs as much as 70% or as little as 40%. I’ve seen repeated threads where a new clinician asks colleagues if a split offered by a practice is a good one or not, with a variety of misleading answers.
Why the Split Doesn’t Make (as much of) a Difference (as You Think)
It seems that the common focus on your split comes from looking at things from a perspective of “How much do I need to pay the practice for each session I provide.” While none of us want to be taken advantage of, this focus suffers from two problems:
1. You Don’t Pay Your Mortgage (or Rent) with Percentages, but with Dollars
Back when the group practice paid my wife 50% of session fees, had they been a private-pay-only practice charging $150 per session, her cut would have been $75 per session. That would have been better than getting paid 70% of insurance reimbursements averaging say $90. That would have paid her $63 per session (70% of $90).
In actual fact, they typically got a $60 insurance reimbursement, so her pay was just $30/session!
As you can see, as an IC, your split isn’t the number you should be asking about. Instead, ask how many dollars you’ll get per session. Better yet, as I explain below, look at your annual after-tax bottom line.
2. You Don’t Consider the Practice’s Costs that Must Be Covered from Their Portion of the “Split”
Consider two types of practices. One works mostly with insurance clients. The other is a private-pay only practice. In both cases, the practice covers the following costs for every session you work:
- Rent (varies widely, but in a well-run practice in a low-rent area might be as little as $10/session, while in more expensive locales for practices with varying number of sessions per day could be as much as $60/session)
- Credit card processing fees (~3% of charges)
- In-person or remote receptionist and phone service (could be as little as $5/session or as much as $10/session)
Beyond these, an insurance-only practice needs to cover:
- Billing specialist (could cost as much as 7% of reimbursements)
Versus a private-pay-only practice that would need to cover:
- Marketing (could be as much as $10/session)
Beyond these per-session costs, a practice also needs to cover general liability insurance, malpractice insurance, web hosting, electronic health record (EHR) system, accounting, legal support (e.g., to create compliant intake forms), etc.
How Things Change for W2 Employee Associates
In recent years, states are cracking down on the widespread practice (no pun intended) of using IC associates. Earlier this year, I organized an all-day seminar for the Metro MFT organization in the Baltimore/DC area. One of my co-presenters was the head of employment law for a major Baltimore law firm.
In her presentation she stated that the fact that associates provide a service that’s central to the business of a therapy practice makes it hard to counter a potential state ruling that IC associates are misclassified employees. A recent ruling by the Supreme Court of the State of California made that point exceedingly clear, at least for California practices.
Setting aside whether all associates should be employees, suffice it to say that more and more practices are going that route. In fact, my wife’s practice successfully made that transition in 2017.
In a W2-employee situation, the law requires the practice to pay the 7.65% employer portion of your payroll taxes. If you’re an IC, you’re paying this as part of your 15.3% self-employment tax. Beyond that, the practice may offer valuable benefits, that could include e.g.:
- Retirement plan with employer match
- Reimbursement of work-related expenses (e.g., Psychology Today, CEUs, professional books, etc.)
- Paid time off (usually in practices with >15 employees)
- Health plan (via a lower-cost group plan, possibly also contributing toward your premiums)
- Payment for no-show sessions, staff meetings, etc.
- Free supervision (or even paying you to attend supervision)
In short, many things beyond your “split” affect your bottom line.
The Comparisons that Really Matter to You
Up to now I’ve made the case that comparing your split to what the practice retains isn’t a useful one, and may lead you to choosing an option that doesn’t serve you well. The following are the two comparisons you should make.
1. Which Associate Position Should You Take?
Set aside the intangibles for a moment. These may lead you to crossing off your list a practice where you don’t click with the owner; where you don’t care for the location; or where you don’t expect great professional growth. For the following, assume you have two or more offers you like.
You can’t create a “perfect” associate position at a given practice. At best, you choose between two or more existing offers. Here, the useful comparison is how each of the offers affects your bottom line. You should look at how much you’d be paid for the number of sessions you’d likely have, or how much your set salary would be, if that’s the offer.
For example, if one practice expects to give you 20 sessions a week and pay you $60 each, your number here would be ~$60,000/year (assuming two unpaid weeks off). If another practice offers you a set salary of $65,000, that’s the better option, even if you’d end up doing 25 sessions a week, which would drive down your per-session fee. In either case, your split isn’t important as I explained above.
Next, consider the value of benefits.
For example, if the group health plan at one practice costs $300/month, while the other practice has you buy private insurance at $500/month, the former is worth an extra $2400/year (12 months at the $200 difference).
If you plan to set aside for retirement 3% of a $60,000 salary, and one practice offers a dollar-for-dollar match up to that 3%, while the other doesn’t, that’s another $1800/year.
If one practice offers to reimburse $2000/year of employee costs while the other doesn’t, that’s another $2000/year difference.
Next, say one practice offers free supervision and even pays you $10/hour to attend. Let’s then say the other practice has you find a supervisor on your own who charges $100/month, this works out to another $120/month, or $1440/year.
As you can see, benefits can add up to a very significant chunk of change. In the above, the non-salary benefits could leave you with an extra $7640/year. That could make a $60,000 offer with benefits better than a $65,000 offer with no benefits. In fact, considering that the reimbursement may not be taxed, and that employer retirement plan match would be tax-deferred, they may be worth more than the same number of dollars in salary.
2. Should You Take an Associate Position or Open Your Own Practice?
Even if you only have one associate position offer, you still have the option of starting your own practice. However, you should consider all your costs if you go it alone. Here’s a non-exhaustive list:
- Self-employment tax
- Furnishing the office (if renting unfurnished)
- Credit card processing fees
- Receptionist and phone service (or your time to do it yourself)
- Billing specialist (if you plan to take insurance)
- Marketing (especially if you plan a private-pay practice)
- General liability and malpractice insurance
- Building a website, plus domain registration and Web hosting
- Accounting and legal support
- Health insurance
- CEUs and related travel
You’d also have low income while building up your case load. Even once you have a full caseload, you don’t get paid when sick or on vacation. If the alternative is a set annual salary, your income may be unaffected by such time off.
Here, the comparison should be your likely after-tax net profit vs. your after-tax bottom-line result as an employee. To estimate that for the case of opening your own practice, consider the fees you’ll charge, the likely number of annual client sessions, and your expenses. Then, consider your estimated taxes as a business owner. The employee scenario will be simpler and easier to estimate, with few work-related expenses.
The Bottom Line
Since you probably don’t have a solid idea of expenses incurred by the practice that offered you a position, and since you pay your expenses in dollars rather than percentage points, the comparisons that matter for you are of your bottom line in dollars between two or more associate position offers, and/or opening your own practice. The questions to ask are:
- Are you willing and able to go off on your own and make more than the group practice offered to pay you on an after-all-expenses-and-taxes basis?
- Can you live off the offered salary?
- Are you willing and able to provide the number of sessions expected at the practice (e.g., if they expect you to see 8 clients a day, 5 days a week, you’ll quickly burn out)?
Focusing on the percentage split of session fees will likely lead you to making the wrong choice, doing the equivalent of burning money that could have been yours. If you hear someone obsessing about their split, you might want to suggest they come read the above :).
If you want to learn more about how to look at your financial future in terms of both your personal and business finances, email me to coordinate a free, no-strings-attached call.
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
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