Reasons to Discard Fee-splitting in Psychology Offices

An early career psychologist (contractor) decides to work with an experienced psychologist (owner).

The owner provides a furnished office, supplies, front and back office support and (perhaps) referrals. The contractor provides compensation for these benefits with a return of a percentage of billables (usually around 50%) or a percentage of collections (typically 30-35%). This arrangement has been in vogue since I began my private practice nearly a half-century ago. It worked badly then and still does today.

Here’s why:

1. Someone is always unhappy. In most cases, at the beginning of the arrangement, the contractor has no clients. The contractor is thus earning very little income early on and, accordingly, the owner is receiving even less. Essentially, the owner is financing the contractor’s start in practice. At this point, the contractor is relatively happy, as they are entering private practice with no cash outlay, and the contractor is relatively unhappy, as he/she is losing money.

About a year or so later the situation changes, as the contractor becomes busy; their schedule may even be full. At this point, the owner is beginning to receive an ROI (return on investment) but the contractor simultaneously begins to resent how much they are paying to practice - ignoring that the owner is entitled to an ROI for financing the contractor’s start-up. Now the owner is relatively happy and the contractor isn’t.

2. There may be times when the contractor wishes to take an extended vacation or has an accident or an illness. Obviously, when the contractor doesn’t see clients the owner receives no income for their support. How these situations are handled varies but the relationship between the parties usually becomes strained.

3. Accounting headaches. This percentage arrangement often fails to clearly manage issues like no-shows, late-cancellations, clerical errors, insurance snafu’s, refusals to pay, etc.

What to do:

1. At the very least, clauses in the contract/agreement must be added to agree to renegotiate financial terms one to two years after the onset of the arrangement and to address the issues noted in #2 and #3 above.

2. My recommendation: “Stay out of their pockets.” In the office I owned (with partners) we had nine independent tenants - not contractors, all of whom signed a lease. Some of the renters used their office full-time, half-time or part-time. Some of them fully used the services of the front office (taking phone calls, greeting patients, collecting funds, re-scheduling, simple typing, calling clients, etc.); several of the renters used a few of those services, and two tenants chose no front office support at all. Similarly, some of the renters opted for back office support (billing and calling insurance companies) and some did not. Being the business manager of the partnership, and being fully aware of problems inherent in “splitting fees,” I determined each renter’s monthly fee solely on the basis of the amount of contracted office time and services rendered. In this manner, we “stayed out of their pockets” and maintained a harmonious, collegial relationship with all our renters. We cross-referred often, as we carefully selected tenants with complementary specialities. In fact, most of our tenants remained with us for the entire 15-16 years we owned that building.

It is time in our field we discard the tiresome, troublesome, and ethically questionable practice of fee-splitting and progress to a services-utilized model.

Larry F. Waldman , Ph.D., ABPP is a licensed psychologist who practised in the Paradise Valley area of Phoenix for 45 years. He worked with children, adolescents, parents, adults, and couples. He also provided forensic consultations in the areas of family law, personal injury, and estate planning. He speaks professionally on marriage, parenting, private practice development, psychotherapy, and wellness to laypersons, educators, corporations, attorneys, chiropractors, and fellow mental health professionals. He teaches graduate courses for the Educational Psychology Department of Ottawa University. He also is a certified senior fitness specialist. He is the author of “Who’s Raising Whom? A Parent’s Guide to Effective Child Discipline;” “Coping with Your Adolescent;” “How Come I Love Him but Can’t Live with Him? Making Your Marriage Work Better;” “The Graduate Course You Never Had: How to Develop, Manage, and Market a Flourishing Private Practice—With and Without Managed Care;” “Too Busy Earning a Living to Make Your Fortune? Discover the Psychology of Achieving Your Life Goals;” and “Overcoming Your Negotiaphobia: Negotiating Your Way Through Life.” Click on Larry's image above to see his contact details.

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