PP considerations and contracts

[medhead1990]

Hey collective mind. I am hoping to make a thread regarding a topic that comes up somewhat frequently. Hopefully this ends up being a nice comprehensive guide for future users.

I am about a year away from graduating and am speaking with a PP (addiction/med management/therapy) (1 owner/md with 3 PA’s and 3 therapists, TMS, esketamine services, IOP, suboxone, sublocaide, and vivitrol). I know I like the MD and the feel of the practice is great.

I've been looking through all the threads that relate to contracts when joining PP and one about joining PP just out of residency. Below is what I felt were the “highlights” of the searching, as well as a list of the big questions I should be asking when the actual contract comes around.

The current plan is we will make arrangements so I can start doing 1099 five or so hours a week during my last year of residency to acclimate to the system, get a few pts in the panel and break myself in a little. Then at graduation I would start working full time (or as much as I can get through the door), It sounds like they will make getting me priority to get on the biggest insurance in the area (BCBS and then maybe medicare) during the 1099 year if they can and then i suspect a few other insurance agencies as time moves along.

The owner is a super nice lady I know from church and approached me about the idea. I think she is starting to get spread a little thin and would love the backup/ some youthful energy. She is quite spunky and I think may be mid 60’s. If i work for her I would for sure put in 2 full years and then Im not sure. We are in residency on the east coast and all our family is out west, we now have three kids and were pretty sick of living on an “island” when it comes to family stuff. That being said we LOVE where we live and have said multiple times if family was close we would stay here in a heartbeat.

So when looking at this job I have the obvious 2 years of “cutting my teeth” regardless of what the future holds, however, I do get a sense that within the next 5-10 years the current MD/owner will want to lessen hours at min and/or drop the practice and fully retire. This obviously creates a very intriguing opportunity as I have thought of pp ownership in some sort of fashion on multiple occasions. there is some really excellent potential for a turn-key PP that I could own (and worst case she doesn't want to retire ever and I work in a PP I like and gives me essentially full autonomy to do what I want as long as I bring in revenue). Of note I have no idea how much the practice makes but I feel pretty confident assuming the MD makes at least 500k with all the stuff she has going on, and the practice having been established for at least 10-15 years.

So questions that then bubble up specific to my circumstance, I anticipate my first two years I'm a W2 and then after that depending on our family goals I would likely discuss “partnership”. Below in the highlights is a number of pro’s/con’s to partnership from various threads. One question I ask is what exactly can/do I bring to the table to justify the concept of doing a partnership? If I truly am partner I would be happy to help oversee PA’s/Therapist, and would love to help with some of the TMS and esketamine (hopefully therefore making the owners life a little easler even if it does mean less cash in her pocket). I am also glad to come in and help add new revenue streams. I am IM-Psych and would love to keep doing some IM, while i don't see myself as a PCP carrying the impetus of making sure people do their cancer screenings. I would love to help manage medical stuff, and then do some procedures such as OMT, joint injections, acupuncture, derm stuff, and whatever. Would bringing in the IM stuff bring any “value” or is it a nice thing to be able to do but really would not benefit the other MD if we were in a partnership? What things should i focus on during that first two years to make myself as useful as possible (or is the answer just work hard and be open to learning and you’ll do fine kid).



Questions to ask for:

• Practice expectations for managing out of hours calls?
• Non compete? If so what is it?
• Health insurance
• 401k arrangements
• CME?
• Malpractice
• Life insurance
• Disability insurance
• What arrangements do they have in case a patient gets agitated in the office?
• Insurance Payor mix and their reimbursements for our E&M codes and how the patients are distributed
• Contractor vs Employee, how RVUs factor in if at all, is there partnership, is malpractice covered as an IC
• %collections for billing, and are you paid based on what's collected or on what's billed
• turn over rate
• meet with the other psychiatrists there and speak with them about their experience
• Coverage for after hours, time off, sick, vacation, etc.
• How are patients screened and do they see a sw or therapist prior to seeing you
• ancillary support for prior auths, paperwork, faxes, care coordination, vitals, etc.
• as a psychiatrist is it primarily psychopharm or combination
• how much notice they require prior to resignation and vice versa
• how will your performance be measured
• how much time is allotted per new eval and for follow ups
• Nursing coverage for triage, refills, etc?

Thoughts

• Non compete? If so what is it? Im planning to ask for a no none competeOR very loose non compete Im thinking I will do one of those PT tele med jobs in a state other than my own starting at 20hr pr week and then getting down to about 5-10 once actual pt base gets big enough- 1. To supplement income 2. More importantly to allow me 1099 tax advantages such as getting my wife a 401k and HSA.
• 401k arrangements. Am i too aggressive to ask for 100% match up to 10%
• CME? 3-5k? Whats normal
• Insurance Payor mix and their reimbursements for our E&M codes and how the patients are distributed-- mostly BCBS and medicare, not sure about the rest
• %collections for billing, and are you paid based on what's collected or on what's billed Sound like I should be shooting for 60/40-70/30 as a W2? Also Question? what is fair in either situation ie(what’s collected vs what’s billed)
• turn over rate
• as a psychiatrist is it primarily psychopharm or combination. I think I would get to do what i want which would be a mix.

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[medhead1990]

Good thread quotes with some commentary in bold occasionally.

While I agree with most points (i.e. psych has few ancillary profit streams), in small private practices if you are not "partnership track" what it means is that the partner who hires you and deals with the business aspects shields all billing/accounting information from you. This means usually they take a 50% haircut off your revenue from day 1. Some people don't care about this, but it's just something to be aware of.

I think a better arrangement in psychiatry is a senior psychiatrist come up with a reasonable agreement for protected salary for X number of years in exchange for some fixed "mentorship" fee, and open all books for transparency. Alas, this is not the case in the usual.
I guess i see this being my circumstance? How do I word that within a contract? I’m fine giving 5 out 10% fee for training/ what may be considered “buy in”.


You pay an extra 7.65%+1.45% on wages up to 128k and then only an extra 1.45% after that. Run a 1099 tax calculator a few times using a gross income of 250k, 300k and 350k and you’ll see how negligible this is at higher incomes.

If you’re 1099 though you should be getting at least a 10-15% better split to make up for the taxes above, health insurance, 401k match, etc.

Whats normal overhead for PP?---30-40% is typical. Agree with F0nzie. 30% is a high number if the practice has a no show rate of 50% and no no-show policy in place. 40% is a better number if no-show rate is less than 5% and they charge full no-show fees.

The overhead is weird. It's 40% for the insurance stuff, but the cash stuff I get to keep all of it. All in all, that's probably about 20% overhead.

I run a full-time, self-pay private practice. My total overhead over the past 4 years has only run between 9-12%. There are many ways you can keep your expenses minimal in psych.

Took me about 3 months for my hours to get filled completely. Took me about 6 months before I felt I was riding the wave so to speak. During the first few months, everyone is new, you are still figuring things out.

Most important thing in a small group practice is getting along with everyone.

So here are some information I had gotten from the pp :
1) 1099
2) The first 450,000 gross collection is payable to physician at 60%
The next 300,000 gross collection gross collections payable to physician @ 65%
Gross collection exceeding 750,000 are payable to physician @ 70%
3) 90% insurance +2 cash Med check daily
4) No benefits
5) total NET daily rate =1186 /8 -> $148/hr @ 100% attendance =284,640
+75,000 for 3 TMS patients daily=359,0640

I do have loans and it would probably be wise to work with government but I’m so traumatized that I really want to give pp a shot. The employer wants to offer partnership after 2-3 years.

He says he brought in 400,000 past year but his office had to turn away so many potential patients. Tells me I can make 400 depending on how hard I want to work. Doesn’t make that sense to me if I’m looking to work 40 hours a week.

Also, the owner claims he cannot share insurance reimbursement dollar amount with me stating it is illegal, is that true ? yes it is

Asked for 4 week vacation because that was the standard at my residency program. I assume maternity leave is a no-pay 12 week leave.

Now I don't know how much the overhead is in this PP. I assume rent for 1 office room might cost ~$10,000/year. I don't know about the patient waiting area and reception room and stuff. I also have no idea how much the staff support would cost. I asked for malpractice insurance but I don't know how much that would cost (I've heard few thousand per year...?), I don't know how much they pay for EMR. I also assume that the owner would want some profit from hiring me, but I don't know how much is a fair share. Any feedback would help!

I think the “partnership track” in most psych private practices is worthless. It would complicate accounting, increase costs, includes a buy-in, and may return nothing. Some large companies call it a “partnership” but it doesn’t work the same.

Thanks again, all. Seems like an ideal situation would be joining a local, established practice with some potential for mentorship/collaboration - I know there's a greater income potential with owning my own practice but I'm okay with giving a percentage to the owner of the practice initially in exchange for learning the system/having access to an established setup.

Fields that have many revenue streams are ideal for partnerships. The idea being that partners split the profit from ancillary revenue streams. Revenue could come from a surgical center, physical therapy center, lab, imaging, etc. Some groups have labs generating millions in revenue per year. None of the revenue is clinician generated. After a few years of quality service and proving to be a team player ordering in-house services, you are given the option to buy-in as a partner to split the ancillary profits.

If small group is owned by MD you should probably ask for partnership track and there will be a complicated negotiation process at the time of making partner, as the books would be open and there might be a buy-in. Large group practice typical example is Permanente Group: there is an automatic partnership track with clear milestone from day 1. In general an equity partner in a small group cannot be fired except if the owners get together and vote this person out, typically due to highly egregious behavior. In large practices, you role is similar to an employee, and can be fired at will, even though some fraction of your income will result from profit sharing. In general however, due to misaligned supply vs. demand, psychiatrists at large facilities who perform at par RARELY get fired for financial/restructuring reasons, with the only example being roles being replaced by NPs.

I'm seeing $300-350k. These practices are offering health/dental/vision insurance, 2-4 weeks of vacation to start with, retirement match of 3-10%, at 30-32 clinical hours per week with 5-10 hours of admin time per week.

Idk about you guys but from what I’ve seen an 80/20 split is very generous. 70/30 if you’re 1099 seems to be more common if you’re truly just joining on to a practice which is covering all the overhead (office space, EMR, secretary, office supplies, billing/collections, utilities, etc). Your overhead would likely be higher than just 20% if you set up a PP on your own and they’d definitely take more of a cut since it makes it simpler for the person joining on.

I’ve heard of more like 60/40 or 65/35 if you’re W2 getting benefits, malpractice, etc.

Partnership is almost ALWAYS worth it for informational reasons. How much it's worth monetarily depends on what kind of profit can be generated, plus a plethora of other information, such as the prevailing risk-free interest rates. If you don't buy-in and become a partner, the financial details of the practice are opaque to you, and you will not have a voice one way or another, regardless of whether it's "fair".

In the current low rate environment, buy-ins are often inflated. Nevertheless, it's STILL a good idea to say that you are willing to buy-in as the very due diligence process alone allows you to make an informed decision. I wouldn't worry about the details--when the time comes the process will be explained to you and there's plenty of time for negotiations.


Partnerships mean almost nothing in private practice. There is little to no ancillary income to split in a typical practice. Exceptions exist if you have a dozen NP’s, TMS machines, lab center, dozen counselors, etc. Partnerships only matter when there is excess relatively passive income that you could obtain.

Heard from an insurance-based PP that is offering a 60/40 split (W2, with benefits - health/dental/malpractice) for the first year. Practice is fairly well-established and basically has everything up and running so I'd be doing very little admin work. I've seen others offer a bit more (65-70%) but wondering if there are circumstances where people would consider 60/40 a good deal, or if 60/40 generally seems low.

Could be. Devil is in the details. Hours worked, and actual net money in your pocket. Lots of things to consider.

My overhead for year one was 85%, year two is looking like 55%.

I think in coming years I might be able to get mine down to 20-30% range.

Agree 60/40 even up to 70/30 I’d be expecting benefits. Once you get above 70/30 then you typically start falling into the 1099 range but that split can vary widely (I’ve seen splits up to close to 90/10 with large practices that already cover all their overhead and you’re basically taking up an already empty office). Smaller practices have more overhead to cover per person so you can expect the split to be lower generally.

 

[TexasPhysician]

Partnership in small psych practices is fairly rare. This psychiatrist has already built up ancillary staff. Unless you can come in and attract multiple additional ancillary staff over doubling what is already there yourself, you bring 0 value to a partnership.

Retirement contributions have to be equal across other W2. Whatever is already in existence is all that can be offered unless they change the structure for everyone. I wouldn’t want to tie $ to CME. I’d just increase salary amount by that much. That way you control where it goes.

 

[dl2dp2]

You'd be surprised how long the current arrangement can last. I'd bet you she's not going to retire in 2 years. All the things I've read which you've thought through will be applicable and you'll just negotiate from there. Summary average reimbursement ~ $150 per hour or less is not very impressive in the current environment. There's definitely room to push things up. That being said, you haven't shown that you are actually able to see that many patients, so perhaps you can make it more incentive driven at least for year 1.

 

[medhead1990]

great thoughts thanks yall.

 

[clozareal]

Good thread quotes with some commentary in bold occasionally.

While I agree with most points (i.e. psych has few ancillary profit streams), in small private practices if you are not "partnership track" what it means is that the partner who hires you and deals with the business aspects shields all billing/accounting information from you. This means usually they take a 50% haircut off your revenue from day 1. Some people don't care about this, but it's just something to be aware of.

50% is quite a lot. I've seen 70/30 split be more common and with that 30%, much of that goes to overhead. Partnership track makes more sense when there are ancillary services, goods being sold, or real estate equity to be had in the commercial real estate for the offices. It makes the most sense in non-psychiatric practices.

I think a better arrangement in psychiatry is a senior psychiatrist come up with a reasonable agreement for protected salary for X number of years in exchange for some fixed "mentorship" fee, and open all books for transparency. Alas, this is not the case in the usual.

One of the offers that I received was getting a base salary, but if you beat that base salary in terms of productivity, then you would get that productivity amount. This was calculated on a monthly basis. Another offer I received was to work 30 clinical hours and then have 10 admin hours a week of education, supervision, mentorship, collateral gathering, and catching up on notes/patient care which would automatically be compensated.

I guess i see this being my circumstance? How do I word that within a contract? I’m fine giving 5 out 10% fee for training/ what may be considered “buy in”.

I've seen buy in costs for partnership be anywhere from $5k at the end of 2 years to $200k ($40k over 5 years, can be cashed out if you don't want to be partner).

You pay an extra 7.65%+1.45% on wages up to 128k and then only an extra 1.45% after that. Run a 1099 tax calculator a few times using a gross income of 250k, 300k and 350k and you’ll see how negligible this is at higher incomes

If you’re 1099 though you should be getting at least a 10-15% better split to make up for the taxes above, health insurance, 401k match, etc.

Whats normal overhead for PP?---30-40% is typical. Agree with F0nzie. 30% is a high number if the practice has a no show rate of 50% and no no-show policy in place. 40% is a better number if no-show rate is less than 5% and they charge full no-show fees.

The overhead is weird. It's 40% for the insurance stuff, but the cash stuff I get to keep all of it. All in all, that's probably about 20% overhead.

I run a full-time, self-pay private practice. My total overhead over the past 4 years has only run between 9-12%. There are many ways you can keep your expenses minimal in psych.

Took me about 3 months for my hours to get filled completely. Took me about 6 months before I felt I was riding the wave so to speak. During the first few months, everyone is new, you are still figuring things out.

Most important thing in a small group practice is getting along with everyone.

So here are some information I had gotten from the pp :
1) 1099
2) The first 450,000 gross collection is payable to physician at 60%
The next 300,000 gross collection gross collections payable to physician @ 65%
Gross collection exceeding 750,000 are payable to physician @ 70%
3) 90% insurance +2 cash Med check daily
4) No benefits
5) total NET daily rate =1186 /8 -> $148/hr @ 100% attendance =284,640
+75,000 for 3 TMS patients daily=359,0640

I do have loans and it would probably be wise to work with government but I’m so traumatized that I really want to give pp a shot. The employer wants to offer partnership after 2-3 years.

He says he brought in 400,000 past year but his office had to turn away so many potential patients. Tells me I can make 400 depending on how hard I want to work. Doesn’t make that sense to me if I’m looking to work 40 hours a week.

Also, the owner claims he cannot share insurance reimbursement dollar amount with me stating it is illegal, is that true ? yes it is

Asked for 4 week vacation because that was the standard at my residency program. I assume maternity leave is a no-pay 12 week leave.

You wouldn't get paid vacation if you were 1099 or in private practice. Most places that offer 1099 let you take vacation whenver you want.

Now I don't know how much the overhead is in this PP. I assume rent for 1 office room might cost ~$10,000/year. I don't know about the patient waiting area and reception room and stuff. I also have no idea how much the staff support would cost. I asked for malpractice insurance but I don't know how much that would cost (I've heard few thousand per year...?), I don't know how much they pay for EMR. I also assume that the owner would want some profit from hiring me, but I don't know how much is a fair share. Any feedback would help!

I think the “partnership track” in most psych private practices is worthless. It would complicate accounting, increase costs, includes a buy-in, and may return nothing. Some large companies call it a “partnership” but it doesn’t work the same.

Agreed. The biggest benefit is getting to have a say in the overall direction of the clinic.

 

[calvnandhobbs68]

You wouldn't get paid vacation if you were 1099 or in private practice. Most places that offer 1099 let you take vacation whenver you want.

To make this explicit, if you're getting paid vacation, it's very likely you wouldn't pass the 1099 test for the IRS if they come sniffing around and they'll try to reclassify you as W2. It's best to think of 1099 as hiring a plumber or contractor for instance...you're hiring them to come do a specific job (so in your case see patients). The plumber tells you when they're going to show up, when they're on vacation, how much time they need for a job, you don't pay their insurance, vacation, sick days, etc. You just cut them a check for the work they do and give them some space to do their job. That's basically what 1099 contractors are supposed to be for the IRS. There's a bit more leeway than this in real life (ex. they can realistically give you an office to work in for example and it likely wouldn't violate 1099 rules) but it's a good starting point.