2 Ways to Credential a Group Practice...And Which You Should Pick
With the COVID-19 pandemic, licensed therapists are returning to a partly insurance-based model of private practice because of the shortage of private pay clients. This trend creates a lot of uncertainty when it comes to insurance credentialing and how to structure a group practice with insurance. There are two models of credentialing a group practice, and this blog is going to outline the pros and the cons of each model of credentialing so you can make the best decision as you continue growing your private practice.
Model 1 - Reverse Contractor Model
This model is entitled the "reverse contractor model" based on an interview that Jeremy Zug did with Julie Herres of Green Oak Accounting. Julie is actually the creator of this title. There are a couple of hallmarks of the reverse contractor model. First, this model presupposes that the practice owner is the owner of an umbrella organization. This organization is responsible for the building, administrative duties, parking, and maybe credentialing in exchange for money paid from the therapist.
The organization does not actually employ the therapist. The organization provides space and administrative duties for a clinician to practice within. The therapist in this model is paying for rent, billing, internet, and amenities. However, the clinician in this model is individually credentialed with the insurance companies of their choosing, holds their own liability insurance policy, and is responsible for paying the practice for the privilege of practicing at the organization's facilities.
Advantages - Reverse Contractor Model
This particular model has some distinct advantages. The first advantage that this model has for the practice owner is the liability of risk within the practice. What that means is that the clinician working at the practice is responsible for upholding their own contracts with the insurance company. For example, if the clinician is engaging in any activity that violates the contract the specific clinician is at fault and responsible for any malicious behavior intentionally or otherwise toward the insurance company. The clinician will be responsible for any penalty for violating the contract with the insurance company and not the practice owner. This is particularly appealing for the practice owner because it reduces the burden of liability and risk for the organization.
Another distinct advantage that this model holds is that if the clinician chooses to leave the practice they take the insurance contract and any credentialing burden with them. this means that the practice is not responsible for dealing with the credentialing offboarding process for a clinician.
The next advantage that this model has is that the revenue produced by a single clinician is relatively stable. The practice owner does not have to worry about making payroll and they do not have to worry about the revenue that the clinician is producing. The practice owner simply invoices the clinician and the clinician is responsible for paying that invoice. concrete cash flow that is made possible through this model is particularly appealing.
Disadvantages - Reverse Contractor Model
However, there are some disadvantages to this model.
The largest disadvantage that this model produces is the administrative burden of the practice increases exponentially with the addition of clinicians and insurance pairs. For example, if a practice like this brings on five clinicians and each of those clinicians is credentialed with 20 insurance companies, the practice is responsible for tracking the information (especially if the practice is doing the billing) for have separate practices. The problem that practice owners will run into eventually with this model is that insurance claim follow-up becomes untenable at a certain level. This means that the administrative burden and needed to follow up on the claims that might have hundreds of possible credentialing combinations will become very difficult to manage.
The other disadvantage of this model is that practice owners are not in control of the clinician's schedule. This means that the practice owner and the practice and general have very little influence for how a clinician spends their time. Think about the practice in this model as a container. The container doesn't decide how much water goes inside of it, just that water can go inside of it. A highly motivated clinician would be able to leverage this model to their advantage. however, if you have a less industrious clinician they will work the hours that they want.
Model 2 - The Employer Model
The employer model has features that set it apart from the reverse contractor model. The first feature of this model that sets it apart from the reverse contractor model is that the clinicians that are on board with a practice like this are usually credentialed under the practices tax ID and type 2 NPI. The previous model, the reverse contractor model, cannot dictate the specific credentialing typography that a specific clinician wants to credential with.
This means that clinicians could credential with their type one NPI and a social security number or the clinician could credential with a type one NPI and tax ID, or the clinician could credential with a type one NPI, type two NPI, and tax ID.
However, in the employer model, the practice is going to bring clinicians under their contract with the insurance company with a tax ID and a type 2 NPI. Right away it is obvious the combination of credentialing information is leaner in the employer model, and lean processes lead to more profitable organizations.
Another key feature of the employer model is that clinicians are either 1099 contractors or W2 employees. If the clinicians are employees of the practice then the practice has control over their schedule and how the clinicians spend their time. This offers the employer model an advantage because the owner of the practice can better direct the income of the practice. Another feature of the employer model is that clinicians are either paid a percentage of what they bring in were they are paid a salary.
Advantages - Employer Model
There are some distinct advantages to this model.
As stated above the first advantage is that the clinician or practice can direct the clinicians time in this model. This is appealing because in private practice time equates to money. The better a clinician can guide the employees and how they spend their time the more money the practice will make and the longer the practice will be able to serve the community.
The next advantage that this model offers is the streamlined administrative burden. For example, in this model when a staff member needs to call the insurance company to find the status of a claim they will give the insurance company one set of credentialing information, but in the previous model, the staff person would have to organize themselves in a way to track each individual clinician and how they are credentialed with each individual insurance plan. A practice with the employer model can employ fewer administrative staff over the reverse contractor model and that benefits the employer model in a tremendous way in the future.
The next advantage that the employer model offers is the ability to pay clinicians a consistent salary. It may be counterintuitive to think that a salary would equate to less stress for the practice owner, but in our experience clinicians that use the employer model, worry less about finances and less about payroll than any other model of private practice that exists.
Disadvantages - Employer Model
There are some disadvantages to this model.
One disadvantage is that the practice owner and the practice will carry the liability of the actions of the clinicians. If a clinician is operating outside of the boundaries of the contract with the insurance company then the practice owner will be responsible for that. this can be a frightening feature of this model, but with the correct systems in place liability shouldn't be an issue.
The next disadvantage of this model is financial. If the practice owner has entered into an arrangement with the clinicians that they will pay a salary. Then the practice owner is responsible for making payroll. This can be an added pressure in the event that the practice owner does not have responsible for fiscal practices. With certain fiscal practices, the owner of the practice won't have to worry about payroll.
Which Model Should You Choose?
Choosing which model to use can be a complicated journey. First, you have to consider your own risk tolerance level. On the one hand, do you think that you can handle the promise to hit a payroll? On the other hand do you think you would rather figure out the administrative side of private practice and collect a paycheck versus directing staff time?
You also have to think about the administrative burden either way. In either model, there is a responsibility of the practice owner to figure out how the administrative side of the business is going to work. If you are providing billing services for each clinician you will want to think through how you are going to do the billing and how complicated you will want those processes to be. Obviously, the employer model offers a more streamlined approach to private practice vs. the reverse contractor model. It is imperative to ensure that your business is profitable even through the administrative burden, so you can continue to hit your mission in your community.
There are a lot of elements to consider with either model and it will be important to give careful consideration to which one you will want to select.
If you need help deciding which model to select we would be more than happy to talk through more of the details of each model. Feel free to reach out to us and talk with our team members! We would be happy to help on your journey in private practice.