The Forgotten Option in a Chiropractic Practice
By Jerry Peterson
What if I were to tell you that without increasing your current patient volume and with very little risk, you could increase your net take-home pay? With the present “crunch” on the health care dollar, many doctors are exploring ways to become more cost efficient without giving up their quality of care and/or having to cut back on their business expenses (i.e. laying off staff, dropping community sponsorships, reducing advertising).
There is an often overlooked option that may be the answer that you’re looking for: office sharing.
Who Is a Candidate for Office Sharing?
There are two parties involved. The doctor that currently operates the clinic will be referred to as the “existing” doctor, and the potential new tenant will be referred to as the “incoming” doctor. Typical existing doctors that may be interested in this option would be those who have extra office space and are looking to reduce overhead without bringing in an associate or business partner. Common incoming candidates are usually new graduates or doctors that have just completed an associateship and are looking to “move on.” Doctors, especially in the latter situation, will be looking to either set up a new clinic or purchase a practice as their primary options. Sometimes, however, their circumstances (i.e. being unable to obtain sufficient financing or not finding a clinic in the geographic area where they want to practice) may prevent them from pursuing these options.
How Does It Work?
The first step is to determine exactly what is being offered to the incoming doctor. Office share arrangement packages can vary considerably. You may be offering one or two empty rooms and nothing else. In this case, the incoming doctor supplies his/her own staff, equipment, etc. Another package may offer the incoming doctor nearly everything he/she needs, such as office space, billings/collections, supplies, etc.
After you have determined what you will be offering, the next step is to calculate the monthly charge for the incoming doctor. This fee can be based on a percentage of the incoming doctor’s collections. The percentage that is charged should reflect the type of package that is being offered. If you have a package that is simply offering a room, this percentage may be as low as 10 percent. If you are offering the total package, 50 percent may be more appropriate.
The next step is to establish a minimum monthly payment that will be charged to the incoming doctor ($500 for example). We need to have a minimum charge because there will be costs associated with accommodating a new tenant, and there needs to be a certain level of financial commitment from the incoming doctor. The minimum charge can be reduced or temporarily waived for the first few months to help the incoming doctor build up his/her cash flow.
The next step is to establish a maximum monthly payment. Set the maximum payment equal to one half of the overhead, specifically “shared” overhead. In almost every case, the total overhead of your clinic will include expenses that may or may not pertain to the incoming doctor (i.e. malpractice and disability insurance, vehicles, seminars, pension plans). As you look at each overhead item, identify and calculate the total of all shared expenses. Occasionally, there may be an item that is not easily identified as a shared expense. A rule of thumb that may be helpful is don’t include items that will have unequal consumption as part of your shared expenses ( i.e. one of the doctors may use nutrition much more frequently or one of the doctors may get more heavily involved with resale items). In this case, it is easiest to keep a separate inventory. It is important to make sure that the shared expenses have been clearly identified and should be calculated and invoiced to the incoming doctor shortly after the end of each month.
Remember that there are two separate practices and two separate patient bases. Each doctor retains all of his/her collections, unlike having an associate. By using a percentage-based expense formula, the shared overhead as well as the collections from each individual practice can fluctuate without affecting the fairness of the deal. One final suggestion is to make sure the incoming doctor has a separate telephone number. In many cases you can accomplish this by assigning one of your “rollover” lines (if available) to the incoming doctor.
Like any arrangement that involves two separate businesses, you will want to look into any and all potential legal concerns. Other issues to be discussed in advance may include: how to handle walk-in patients or what to do when a patient is treated by the “other” doctor.
Let’s walk through a scenario. Your current practice is housed in a facility that could accommodate another doctor, you don’t want an associate, and you like the idea of reducing your overhead. Your current total overhead is $15,000 a month and you determine that the shared overhead would average $10,000 per month. You put together an office share package that includes two treatment rooms and full use of your entire office equipment and staff. If your plan has a monthly charge of 50 percent of collections of the incoming doctor and a minimum payment of $500, here’s what you can expect. The first month, the incoming doctor has collections of $800. You invoice him/her the minimum monthly payment of $500. A few months later, the incoming doctor collects $6,000 and you invoice $3,000 (50 percent) for the monthly charge. If the incoming doctor continues to build his/her practice (let’s say collections of $12,000), you will be collecting the maximum payment of $5,000 (1/2 of $10,000).
In actual application, the shared overhead that you initially identified at $10,000 will probably have increased, creating an even higher monthly payment from the incoming doctor.
From the incoming doctor’s point of view, he/she will have a place to practice, will benefit from shared overhead expenses but will still have individual business expenses (i.e. malpractice insurance, telephone, advertising). It will still be more cost effective for them to remain in the office sharing arrangement than to set up a separate clinic.