Joining a Naturopathic Practice Part 2 – Fee Split vs. Rent

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Joining a Naturopathic Practice Part 2 – Fee Split vs. Rent

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Joining a Naturopathic Practice Part 2 – Fee Split vs. Rent

Fee Split vs Space Rental

Fee Split Arrangement

A fee split arrangement is when a naturopath pays a percentage of billings to the owner/management of the clinic in exchange for certain services. This percentage may just be for clinical billings or may include additional revenue streams such as supplement sales and lab tests. Many naturopaths consider 60% of the billings for the practitioner and 40% for the clinic to be a standard or fair split percentage. I’m strongly of the opinion that very few situations or contracts ever fit a “standard” model because there are so many factors to consider when looking at fee split arrangements or joining a practice in general. If you’ve been offered a position, I can provide you with a complimentary consultation and assessment.

Advantages

For a naturopath with fewer patients or only practicing a day or two per week fee splitting usually will mean that you will end up with a higher percentage of your income compared with a rental arrangement. This allows you to be able to build up your practice without assuming much risk, knowing that you will never be in a position where you will have to pay anything to the clinic at the end of the month.

Additionally, when the clinic is sharing in the success of your practice there is a financial incentive for the clinic if you are doing well. Because of this, most clinics that use fee split arrangements provide some advertising or referrals for their practitioners.

Clinics that operate with a fee split arrangement also usually cover all the essential aspects of running the clinic (reception, appointment booking, billing and collection, supplement sales, book-keeping) so the practitioner can just focus on treating patients.

Space Rental

Renting space within a clinic is where a naturopath pays a monthly fee to the clinic usually for use of a treatment room (either for exclusive use or for certain set times and days of the week). The rental fee includes use of the space and possible some ancillary services (this widely varies between clinics and contract agreements). Naturopaths that work at a clinic with a rental agreement often have many similarities to those operating their own clinics. The main difference is that a clinic owner is responsible for all the extra services where a naturopath renting space at a clinic pays for some of those services in their monthly rent.

Advantages

Renting space can be an advantage over a fee split for practitioners that have many patients or willing to take on a higher amount of risk for more income in the long-term. When looking at space rental there a few quick calculations that can be done to get a sense of whether or not it is a good fit:

Break-even point: What billing amount will you need per month to pay your rent? What does this work out to per day working at the clinic?

50% Profit Margin: Take the break-even and double it to get your monthly or daily billings to be keeping the same percentage of your billings as the clinic. How does that compare with your current patient numbers and billing? Triple the break-even number for 67% margin, or quadruple it for a 75% margin.

Growth is also an important consideration for a space rental arrangement. The revenue from every additional patient that you can bring in is all yours. If you expect your patient numbers to grow quickly a rental agreement is often more advantageous. ND Business Solutions published a supply and demand study in December 2014 that compares regional demand for naturopathic medicine. This can be a useful tool for predicting the growth speed for your practice. Looking for information on a specific town or neighborhood? We can probably provide it – just fill out our contact form and we’ll be back to you shortly.

Other Considerations

Regardless of whether a clinic offers a fee split or a space rental agreement it is important to look at the other services the clinic provides. Is there a receptionist there full-time? If so, do they handle all typical reception services? Specific things to look for:

  • Answering phone calls 5 or 6 days per week
  • Welcoming patients to the clinic and walking them through intake and consent forms
  • Booking appointments for your schedule
  • Billing patients for clinical services and lab fees
  • Collecting payment (including accounts receivable)
  • Book-keeping
  • Supplement Sales

Does the clinic have an existing patient base or will you be the primary source of your patients?

What marketing efforts do they provide?

Are you required to fill roles other than being a clinical practitioner? For example, some clinics require all practitioners to perform some reception-like services.

Before you sign any agreement, make sure that everything the clinic is providing is in writing as part of the contract.  ND Business Solutions can provide a complimentary review of your contract, and we may be able to help you negotiate a better deal.

Look for more on contract negotiation in Part three of the Joining a Naturopathic Practice.


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Determining the fair value of naturopathy patient files

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Determining the market value of naturopath patient files

Recently, ND Business Solutions has assisted some naturopaths that were either buying or selling patient files (either on their own or as part of a practice). In the industry right now, some common rules of thumb are often used to determine the value of these files. The most common metric I’ve heard from naturopaths is that patient files are worth a certain dollar amount per file, or per file that has been active within a certain time frame. The CAND suggests between $125 to $200 per file active in the last 3 months and about half this for files active within the past year. While this method has the advantage of simplicity, it has some pretty serious (and potentially expensive) drawbacks.

If you take a moment and think about the billings you generate from your list of patients you will quickly realize that some patients provide a greater amount of revenue for your practice than others. Additionally, you also have probably realized from experience that someone who came in for an initial consult a few months ago and hasn’t returned isn’t as likely to continue being a patient as someone who has been in for a visit every couple weeks. Here’s a graph from a random sample of patient files showing the revenue breakdown distributed across the patient base. The area shaded in represents total revenue.

Fair Value of Patient Files

As we can see from the graph the top 20% of these patients generate roughly the same amount of revenue as the other 80%, making their files much more valuable for any potential buyer.

It’s possible to make the argument that this distribution is accounted for in the dollars per patient file rule that is commonly used, and this is true to an extent. An average billing per patient will occur across the profession and if the revenue distribution across a set of patient files is similar to the average, the rule of thumb can provide a fair value.

How do I know if my patient files will be accurately valued by a rule of thumb?

Currently there is no data available revenue distribution or average patient billings for the industry, although it is a project we are working on (help us here!). Since there is no way to accurately determine if the dollars per patient file works for a given situation, it is impossible to have any certainty that the valuation it produces is a fair value.

There are other issues with this method as well:

Different naturopathic practices will have higher or lower billings per patient for many reason (urban vs rural fee gaps, specialization in certain modalities, differences in the experience and reputation of naturopaths, etc.)

When a naturopath sells their patient files, they may decide to keep their best clients who are generally the most loyal and willing to travel to the naturopaths new location or even have consults over skype.

How else can I determine the value of a naturopath’s patient files?

ND Business Solutions values patient files using the adjusted discounted future cash flow method.  The goal of this method is to predict the future cash flow the purchaser will generate from the files purchased, adjusted for an appropriate return on investment that reflects the level risk of the purchase (this is referred to as a discount rate).

This method places more emphasis on revenue and income that a set of patient files will generate, rather than the sheer number of files.

ND Business Solutions has also created a metric called the Retention Score that predicts how many patient files will actually turn into patients.  This method differentiates between top patients that book visits frequently and other less than stellar patients.

naturopath patient retention score

By assigning different values to patients based on their predicted retention, we are able to solve many of the issues discussed with the single amount per file rule discussed above.  Looking at the above graph, the top 20% of the patients would rank much higher as they are more loyal to the clinic and likely have been in for a more recent visit.

ND Business Solutions can professionally appraise your patient files, or patient files that you are looking to purchase.  Please contact us to see how we can assist you.


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Joining a Naturopathic Practice

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Most Naturopathic Doctors will choose to join a naturopathic practice upon graduating and passing their licensing exams. It’s generally easier than starting your own practice, there is no requirement to go into (even more) debt, and it allows the naturopath to focus on gaining clinical experience rather than worrying about all the aspects of running a business.

While joining another clinic may seem in many ways like getting a job, in reality it is much more complex. In almost every contract I’ve reviewed,  the Naturopathic Doctor is responsible for many aspects of running their own business including reporting requirements to Canada Revenue Agency. Most (if not all) of your compensation will be based on performance: patient billings, supplement sales, lab fees, etc, and you will often be responsible for generating at least some of your patients.

Joining the right naturopathic practice can provide a great boost to your career along with a steady income, while choosing the wrong clinic can leaving you struggling and unfulfilled. This 5 part series is designed to provide a starting point in your search for the right clinic to join. Keep in mind there is not a universal ideal clinic, rather your ideal clinic will depend on your unique goals, interests, and personal situation.

Joining a Naturopathic Practice Part 1: It’s all about You!

Most naturopaths initial thoughts when choosing a clinic tend to focus on (1) will they hire me? and (2) how much will they pay me? or what is the split percentage? While this is a natural reaction especially for new grads, the process of finding the right clinic (and securing a position) is much more complex. When looking at all the important factors in choosing a clinic financial compensation rarely is at the top of the list.

Before determining what clinic is right for you, you must first determine what you are looking for and relatively how important different factors are:

  1. Do you want to start your own practice one day?
  2. How long do you anticipate being at this clinic?
  3. Do you anticipate moving to a different town, province, or country?
  4. Do you plan to specialize in a particular aspect(s) of naturopathic medicine?
  5. What is your clinical “style”?
  6. How set are you on a particular location or city?
  7. What income level do you need to:
    • Meet your basic needs
    • Live comfortably
    • Live luxuriously
  8. How much risk are you prepared to take on?

What non-clinical duties (such as marketing) are you prepared to take on?

Once you know what’s important for you, then you’re ready to begin comparing clinics.


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