When adding a clinician to your practice, you need to consider financial, legal, ethical and tax implications. The following addresses four common "myths" or misassumptions about what is and is not permissible. For your best protection consult a tax attorney, an accountant and your malpractice carrier for advice specific to your situation.
Myth #1: You can avoid paying Social Security and Medicare payroll taxes by designating the clinician as an "independent contractor" rather than as an "employee."
Fact: Whether someone is an independent contractor or employee is not defined by whether they work part time or full time. The IRS has specific rules, which focus mainly on how much control the practice owner has over the person doing the work:
Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
If you are audited by the IRS and they determine that you have misclassified an employee as an independent contractor, you may be subject to fines and penalties.
Myth #2: Having an employee or independent contractor clinician pay a percentage of their collections toward office overhead is considered fee splitting, and therefore unethical.
Fact: The defining characteristic of fee splitting is a payment or commission in exchange for a referral.
Fee splitting is illegal in some states. And according to the ethics codes of APA, ACA, NASW and AAMFT, it is unethical. (Also see this brief article for psychologists by the APAPO Legal and Regulatory Affairs staff.)
In some situations fee splitting is easy to detect. For example:
Dr. Adams has an agreement with Dr. Brown, where if one sends the other a patient, the referring doctor gets a "referral fee." Dr. Adams refers Ms. Smith to Dr. Brown, who has a separate practice across town. Ms. Smith sees Dr. Brown and pays him $150. In turn Dr. Brown sends Dr. Adams a check for $50 as a referral fee. This is clearly an example of fee splitting, and is unethical.
But what if Dr. Brown works in Dr. Adams' office, and they have an arrangement that Dr. Brown pays 33% of collections to cover "overhead"? Would it still be fee splitting if the patient pays Dr. Brown $150, who in turn pays $50 to Dr. Adams?
Calling it "overhead" does not automatically put you in the clear. In order to minimize the interpretation of the arrangement as fee splitting, you need to separate the clinician's financial obligation to the practice owner from patient-specific parameters.
The cleanest way would be for the clinician to pay a flat fee for the use of the space, either by the hour or by the day. For example, Dr. Brown might pay Dr. Adams an agreed-upon rate, such as $30 per hour or $400 per month for one day a week, regardless of what he charges patients, or what he collects, and regardless of who referred the patient.
An alternative would be for Dr. Brown to work for Dr. Adams. In this case, Dr. Brown could be paid a percentage of what is collected, regardless of whether Dr. Adams referred the patient or not. Dr. Brown would be an employee of Dr. Adams, such that all income derived from Dr. Brown's work would be paid to the practice, not to Dr. Brown. Based on an agreed-upon percentage, Dr. Brown would be compensated for his services rendered to the practice.
Myth #3: A practice owner who brings a new clinician into the practice should insist on having a non-compete clause, in order to keep a departing employee or associate from siphoning away income.
Fact: Non-compete clauses (sometimes called "restrictive covenants") typically stipulate that if an employee or associate leaves your practice, they are prohibited from setting up a competing practice within a certain radius (e.g., 25 miles), and for a certain period of time. In states and provinces where they are legal, they may be difficult to enforce, due to complex burden of proof and other legal requirements.
Ethical issues are also important here. It's likely that the clinician who leaves your practice has established productive working relationships with many clients. If they need to travel over 25 miles to continue working with the clinician, that places an undue burden on them. In other words, imposing a non-compete clause may undermine the best interests of your clientele.
Business-wise, using the legal system to enforce a non-compete clause may not only generate animosity between you and the departing clinician, it could also trigger divisive ripple effects among colleagues who sympathize with that clinician, such that they stop referring clients to you. Thus, instead of protecting your business, a non-compete clause may ultimately hurt your business.
Myth #4: If a colleague who sublets office space from you has their own malpractice insurance, you need not worry about liability if a client sues that person.
Fact: While your practice may be administratively separate from the clinician who sublets from you, the public may assume that the independent clinician is associated with you. Take steps to differentiate yourself from the subletter. For example, have separate signage, stationery and phone numbers. Also, contact your malpractice insurer to find out what type of coverage is available to protect you from vicarious liability. They may recommend that your practice be named as an "Additional Insured" on the subletter's policy.
Subletting Your Office When You’re Not Using It
Before Adding a Clinician to Your Solo Practice
Dr. Jeff Zimmerman, co-author of Financial Management for Mental Health Practice: Key Concepts Made Simple contributed to this post.
For a comprehensive overview of this topic, get Dr. Jeff Zimmerman's audio recording, Adding a Clinician to Your Practice: What you need to know.