Whether you’re a practice owner or an associate clinician receiving services from a practice location you work from (rather than an employee), determining the appropriate fee for service structure is best tackled head-on rather than avoided.
Many people have strong feelings about the different structures available based on personal experience, creating potentially challenging situations when negotiating a structure to meet everyone’s needs. It’s worth approaching the topic with an open mind and a clear understanding of all available options to find the most equitable solution for everyone involved.
First, we’ll dive into different key models and some pros and cons.
And if you're looking for a quick and easy way to compare different service fee models, you can download our free Service Fee Type Converter.
Please note that the pros and cons below are theoretical and, in practice, depend on an array of factors specific to each practice. However, they help provide a point of comparison between models for you to consider.
The Percentage Model (variable structure)
The fees payable to the practice are taken as a percentage of the clinician’s received billings – for example, 35% - so fees fluctuate daily depending on the number of patients seen by each clinician and the services provided. Practices can also charge all clinicians the same percentage or scale this depending on billings, resource consumption and other agreements about contributions made to or by the practice.
Pros:
The fee scaling somewhat reflects the usage of practice resources – such as the admin workload, time needed for paperwork and consumables.
Clinicians may see this as more equitable, as those using more resources often have higher billings and will pay more than those on the lower side.
While the practice takes on a more significant risk initially, it should also earn a greater return on investment once the clinician’s books fill up. This can also motivate the practice to engage in more marketing and promotion of new clinicians to ensure they fill their books – where this is part of the service offering.
Cons:
The practice bears most of the risk initially, financially supporting the clinician (losing money) until the clinician’s books fill up.
Clinicians can feel that they’re getting the raw end of the deal when they’re busier, quickly forgetting the financial support and risk coverage the practice provided at the outset.
This model can be seen as more complex when considering fee calculation and negotiation, especially compared with the next contender – the Flat Fee Model.
The Flat Fee Model (fixed structure)
The fees remain the same for each day/session and each clinician – set at a cost calculated to consistently cover the practice’s overheads.
Pros:
It provides certainty for both the clinician and the practice as to what the fees will be.
The practice’s overheads should be covered, regardless of how many patients are seen.
Cons:
The clinician bears most of the risk initially, losing money until their books fill up.
This structure may lead to contention regarding a clinician’s time off for holidays and conferences and who bears the cost.
If a clinician uses more or less of the practice resources due to workload etc., it’s challenging for the practice to recoup these costs. As a result, the flat fee needs to include some buffer to mitigate the risk – this buffer can result in much higher fees than are necessary when the clinician first starts.
The Hybrid Model – Often our preferred model.
This is a blend of the percentage and flat fee models, with a smaller flat fee plus a percentage fee, which accounts for the number of patients the clinician sees.
Pros:
The balance point in the structure can be calculated to minimise risk for both parties.
It covers fixed costs (such as rent) and variable costs (such as telehealth or admin).
Overall, this is typically the most equitable method, regardless of how long the clinician has been in private practice.
Cons:
It’s more complex to set up initially and to maintain – though a well-designed spreadsheet can handle it quite easily!
Other models:
This is not an exhaustive list of models, and some practices develop their own based on their specific needs, but a couple of other relevant models include:
The Tiered Flat Fee Model - more of a step-fixed model, where the flat fee is set based on the number of sessions per week or another relevant variable.
The Stepped Percentages Model - an incentive-based model where the fee percentage drops when clinicians bill over a certain amount in a pre-determined billing period.
Making a selection to suit your practice
There is no ‘one size fits all’ model – every practice operates differently! But in reviewing these options, you may determine an approach that best suits the needs of your practice and your clinicians.
In determining this, a few points we suggest you consider are:
Is there a large discrepancy between clinicians’ use of practice resources and their billings?
The resources your practice has regarding setting up and maintaining a fee structure.
Any personal views your team/clinicians may have regarding a particular structure; if someone has been ‘burned’ before, they may be reluctant to consider a specific fee structure again.
If you’d like assistance assessing the best model for your practice or setting up the systems to put a tailored model in place, please get in touch to arrange a complimentary initial consultation.
The Augmentum team provides a broad range of consultancy and management services, supporting healthcare business owners and decision-makers in key areas, such as strategy development and action planning, building effective foundations and teams, keeping your finger on the pulse, and driving growth and success.
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