Return on an educational investment.
Universities and colleges (Graduate work)
Universities and colleges (Analysis)
|Publication:||Name: Annals of the American Psychotherapy Association Publisher: American Psychotherapy Association Audience: Academic; Professional Format: Magazine/Journal Subject: Psychology and mental health Copyright: COPYRIGHT 2010 American Psychotherapy Association ISSN: 1535-4075|
|Issue:||Date: Fall, 2010 Source Volume: 13 Source Issue: 3|
|Product:||Product Code: 9108130 Jobs & Employment; E220000 Employment NAICS Code: 92611 Administration of General Economic Programs|
|Geographic:||Geographic Scope: United States Geographic Code: 1USA United States|
Everyone with a graduate degree has invested money, time, and
energy to obtain the degree(s) necessary for taking a licensing board
examination. Did your investment pay significant dividends, marginal
dividends, or no dividends? Consider the money and time (tuition,
classroom instruction, research time, travel and lodging expenses,
books, alternative costs of studying vs. spending time with the family)
spent on a graduate program over 4-5, maybe 6 years. If that money was
placed into a bank or a real estate investment instead of a graduate
degree, would the turnaround time for a payback on your investment be
quicker than the job you started after graduation? If you considered the
time alone and had stayed in a job for that same amount of time, would
you have accumulated retirement benefits or/and earned a job promotion
during that time? Asking these questions may prevent an expensive
reaction--in other words, doing "due diligence" or making
every effort to avoid harm to yourself and your company.
Taking the recent listing of salaries and job data from Susan Ireland's Web site, the median salary range for clinical psychologists in metropolitan communities is between $61,000 and $70,000. The highest numbers were in California, where the cost of living ranks at the top with New York. In Arkansas, the median range runs from $54,000 to $60,000. In Colorado, the range runs from $69,000 to $93,000. In Florida, it runs from $58,000 to $91,000. In Nebraska, it runs $52,000 to $58,000, and in Oklahoma it is $46,000 to $56,000. In Texas, it is $50,000 to $67,000 (Ireland, 2010). If you were working at a master's level making $40,000, is the money spent on a doctorate worth the extra $10,000 to $30,000 per year? If you have a student loan for $80,000 to $100,000 to be paid out over five years, payments could run $20,000 annually. Was the return worth the 4-6 years of hard work and reduced income for basically a 10% salary increase, if, in fact, there was a significant difference?
Investment managers and financial advisers use a formula for determining a return on assets (investments): Return on assets = profit margin x asset turnover. Whether you see a 5% return or a 7% return, is that significant? While this may be a subjective decision, it affects how one looks at the business. Therapy is a business, whether one is in private practice, group practice, or working for a nonprofit or educational organization. What makes it a business is that there are costs of working, managing an organization, and selling the services of that company (sole proprietor), partnership, or corporation. While many in private practice joke about being missionaries without a church sponsor, the fact is that many feel very uncomfortable about making money. Some express embarrassment at making a substantial amount more than their average patient. This attitude affects the business negatively when more attention is spent on therapy than on the business side (tasks such as accounts payable, accounts receivable, managing schedules, completing required paperwork, and creating monthly and annual budgets). It is true that more demands and expectations for the growth of the business side of the practice have come with managed care. With the demands of accountability and cost effectiveness have come audits and paperwork generated to document progress, or the lack of it, and the associated costs.
Returning to the question of the value of a graduate degree in today's marketplace, one has to ask questions a loan officer might ask. What equity do you have? The degree is equity in that one can use the degree to obtain a job in a certain salary range. However, for entrepreneurs, one will need more than a degree to obtain funding for start-up costs. More than 60% of new businesses fail in the first 3 years. When applying for a start-up loan, a $10,000 overdraft protection, or an expansion loan, the focus of bankers is equity. If you have receipts proving you have spent $15,000 in your business, then that equity might be used to secure overdraft protection or to obtain a loan to purchase a billing company's software program and expertise. There are resources that will lend on accounts receivable, but this is an expense scenario since those that make this type of loan are looking for a much higher interest rate than banks. Building equity is noted on the income statement. On the balance sheet is a special line, under retained earnings, for owner or stockholders' equity. The balance sheet and income statement show financial stability, negative and positive. Equity is one way to obtain loans. If you have a vehicle that you have had a couple of years, and there is no excessive mileage, then you might be able to use it for an equity loan. A return of equity is also called ownership capital. When estimating return on equity, the equation used is: Return on equity = Return on assets (investment)/1-debt/ assets. Another way to judge your investment is to ask about your alternatives to (1) attending a graduate program, and (2) having graduated, choosing to work in another industry, i.e., corporate America.
Some in private practice complain that the return on their investment could have been higher if put into almost any investment portfolio, the purchase of a franchise, or a real estate project. In addition, entrepreneurs find that their overhead estimated. Some report that they were never prepared to enter private practice as the details choke both their income and their energy.
One of the first concerns with opening a practice is where the referrals will come from. We all can agree that psychotherapy has far-reaching value for families and communities and that the costs of mental health services are significantly less than for a medical service. For example, those "doe in the box" companies charge $450 for a 45-minute conversation and prescription for pain medication in Austin, Texas. A 45-minute psychotherapy session can run from $75 to $150 in Austin with no medication needed. When looking for a location to practice, it is recommended that you pick the city or rural community where you want to work, then look in the yellow pages (print and Internet) to determine the amount of competition you may face or the choices a patient may have. Interviewing a number of therapists may give you an idea of how satisfied therapists are in their practices, what opportunities exist to either find a job or purchase a practice, or if one should first begin working in a nonprofit organization. Another place to look is in rural America, where the needs are higher. Starting one's own business in rural America is harder than in a metropolitan community, and it can take 10 years to break even. The upside is that the government has a forgiveness clause that pays the yearly fee at 20% annually, which translates into 5 years when the obligation ends. Texas has had one of the fastest-growing populations since 2000, 12.7%, according to the office of State Controller of Public Accounts Susan Combs (Combs, 2010). Her figures suggest that more than half the population is within the 25-64 age range. Those over age 65 are about 10% of the population. This aging population generally is covered by Medicare, which means the provider needs to be approved for Medicare reimbursements. For those degrees without that possibility, patients need to have Medicaid coverage, too.
Those with dreams of a private practice--and who have a government loan--may want to consider working in a rural community. Some of these communities are next to a metropolitan area where driving to and from a rural community may be an option. In any case, the therapist needs to factor transportation costs into the overhead. Then there is the cost of travel, in addition to fuel and maintenance costs of your vehicle. Time is valuable. If you charge $75 per hour, then multiplying the hours spent on the road by $75, then times 12, will give you an idea of your annual costs. If you travel 90 minutes a day, the cost you bill for 90 minutes is what you are paying or losing for your efforts each day.
What many new therapists lose track of, at least in the first couple of years, is how quickly overhead expenses eat into revenues. Working in a rural community can be very rewarding, but it can take years to establish a relationship with the referral sources within that community. Most rural communities want specialists, which mental health therapists are often called. Then there are those in Mental Health Mental Retardation (MHMR), which operates with state grants and is allowed to hire non-degreed, non-licensed personnel to work with their select populations (serious mental health disorders like schizophrenia and bipolar, and sometimes suicidal patients). Most communities do not know the difference. Rural denizens are less educated in the value of mental health services. Secondly, mental health services may have a stigma that wears down over time as word spreads throughout the community. Thirdly, at least on the border with Mexico, if the therapist is not fluent in Spanish, then a translator will be required (another expense). In addition, if the therapist is not Hispanic, another obstacle must be overcome.
Overhead expenses that crush profits
Other costs not often discussed in graduate school are the costs of bookkeeping, an accountant or Certified Public Accountant, the services of a legal team, and the different insurance policies that may be necessary. During the course of a private practice, you may need an attorney to handle matters such as incorporation, representation before the Board of Examiners if someone makes a complaint, or when handling the complaint that you are using a name someone else has been using prior to your establishing your office. Most people get around this by using their personal name for the name of their practice. But some areas have more than one Bill Smith or Juan Martinez. If you are ever investigated by any agency (attorney general, FBI, or the state insurance board), you may need a criminal lawyer. It may never go to court, but an allegation/investigation can shut down your referral sources quickly, and if you have professional therapists on the payroll, they may decide to seek another opportunity for fear they will be implicated by association.
Taxes can also be a challenge. There are income taxes, franchise taxes (if you are incorporated) in many states, and unemployment taxes. Find an accountant who has experience with handling tax problems. An enrolled agent can be very helpful if the IRS is demanding total payment immediately and threatening to file a lien on your company bank account and assets, which may hurt your credit rating. None of this is pleasant, and it can hurt your financial prospects, as well as consume your energy in various ways.
Insurance coverage is important if you purchase an office building. Coverage needs may include fire, theft, flood damage, wind damage, and liability against lawsuits for injuries suffered in the parking lot of the office. Even if you are renting space in a building, someone who gets hurt in the stairwell, in the elevator, or outside of another office has the option of suing every renter in the building. Then there is professional liability coverage, which is required to be in practice. Therapists are required by all insurance companies (Medicaid, Medicare, and third-party payers) to have a certain level of liability coverage.
Another liability is human resources. Unless you do all the billing, accounting, scheduling, and cleaning in your office, a staff will be necessary. If your company is a corporation and you hire other licensed therapists to see patients that are sent by your referral sources, you will need to have a contract that covers theft of files, unprofessional conduct, unethical conduct, and breach of contract. Having an attorney who has experience in this area is critical. Going to court against an unethical therapist can be expensive in many ways. When you hire a psychotherapist, you hope you are hiring a person of integrity. However, there are those who figure that they can take files out of your office and work them as they start their own practice in another part of the city. Their argument is often that the patients can see whoever they want, which is true. However, there are civil laws stating that corporate information is of value, and as such, belongs to the corporation or company. Therefore, taking patients and files from your present or former employer is illegal as much as taking out all of her computers, phone system, and furniture. Any legal action will command a great deal of time and energy and will deflate the positive energy out of most offices. These costs are never discussed in graduate school, as there is an assumption that all psychologists and psychotherapists play by the rules. That assumption can cost your company a lot of money.
A therapist, who had worked as a contract labor therapist off and on for 7 or 8 years, saw an opportunity to get even with me for refusing to pay a higher fee for his services. So he decided to take files with him, and, in addition, he conspired with a former office manager and the billing company to change the NCESS numbers. He changed the contact person name to his name and the billing NPI number to his, and the mailing address to his personal address. This did not come to light until I noticed third-party bills not getting paid. Apparently they were not billed by the billing agency because they were not payable under my name, NPI number, and company address, k took more than a year to discover this, because the billing agency was not telling why there were no reimbursements. There was always an excuse. In the meantime, the agency started having problems and was dosing its office. We switched billing to my office and my business partner, and it has taken about 4 months to make the billing changes in order to regain reimbursement status with several large managed care organizations. The therapist has been reported to the licensing board, the FBI, the attorney general's office, and the Texas Insurance Commission. As of this writing, only the licensing board is taking action. However, that does not mean we will get reimbursed for old claims; we can only hope. Claims against the old billing company may not gain much traction, as it is out of business, but one can only hope. This, then, is an example of how easily others can ruin a practice without one's knowledge until the damage has been done. The costs of staying in business rise every time there is an interference with billing and collections.
Additional expenses include management of time, scheduling, and payroll. We had a payroll company that did a good job of issuing payroll checks and accounting for them. Its quarterly reports were very helpful in that they helped us managed payroll (we had more than 21 employees at one time), but after 5 years, a problem developed when our accountant discovered they were charging the company an unemployment rate that was twice what should have been charged. Scheduling is a very tedious and demanding task. When you have a one-person office it is difficult enough, but when you have a small group, it can drag revenues down. No-shows cost money. When an appointment has been made and no one shows, or the patient calls ahead of time to reschedule, there is the cost of the room, the staff, and the professional. Some doctors charge a $25 fee for no-shows. Others either schedule the patient in the same time slot with another patient or reschedule him or her 3-4 weeks later. If there are too many no-shows, they refuse to make any further appointments for that patient. In addition to managing the schedule, time management also means managing one's time with patients, at various meetings and consultations outside of the office, and for handling emergencies that can grab everyone's attention. Not only is the therapist's time valuable, so is that of the staff. Having staff sit around without completing tasks and duties cuts into revenues, too. If they do not show up on time, leave before the office closes, or fail to do their duties in a timely fashion, billing may not get out on time and can delay reimbursements by several weeks. But their payroll had better be on time! Obviously, hiring competent staff with experience is difficult enough in a metropolitan community, but in a rural community, it can be almost impossible.
Taking time to hire and train staff is as important as terminating them in a fashion that does not create hostility in the community. Therefore, many doctors will allow the terminated staff member to obtain unemployment benefits but will also give them an added bonus on the way out, as it softens the temptation to start unfounded gossip in the workplace as well as in the community. In a metropolitan area, there are more qualified employees to choose from, and when they are terminated, any gossip they start does not have the same impact as it does in a rural community. Hiring can be costly since it takes time to bond with the new staffers and to train and develop them. A return on your investment in hiring and training can take several years to be realized. Finding an agency that can help qualify potential employees can increase initial costs, but over time, it can be cost-effective.
There are, as one can easily see, many liabilities and risks in developing a private practice. New graduates would be well advised to do their homework prior to making that first career move. Preventive measures, or due diligence, are less expensive then reactive behaviors and can mitigate, if not avert, regrets.
Combs, Susan, 2010. Demographics. www.windows.state.tx.us Ireland, Susan, 2010. Clinical psychologist schools, salaries, and job data. www.susanireland.com/career-options/clinical-psychologists.shtml
RONALD HIXSON, PhD, LPC, LMFT, BCPC, has been a therapist for more than 25 years. He has a Texas corporation private practice and has founded a nonprofit group mental health organization where he serves as president and executive director. He has a PhD in Health Administration from Kennedy-Western University, an MBA from Webster University, and graduate degrees from the University of Northern Colorado and the University of California (Sacramento).
By Ronald Hixson PhD, LPC, LMFT, BCPC
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