We’re therapists, not business people. We went into the field to serve people, not to serve capitalism. But the field is changing. Agency work is one choice a therapist can make, but increasingly people are looking to go out on their own. They end up becoming business owners, despite their original plans. We weren’t trained for that and it’s leaving a lot of folks feeling out of their depth.
I had always planned on doing nonprofit work. I even felt judgey about for-profit businesses. I had no idea that one day, I would be a business owner. That I would be looking at maximizing the money I could make. It felt wrong even to do that as a therapist. Today we’ll talk about the reality of the nonprofit world and the shift into for-profit business.
You’re listening to the All Things Substance podcast, the place for therapists to hear about substance use from a mental health perspective. I’m your host, Betsy Byler and I’m a licensed therapist, clinical supervisor, and a substance abuse counselor. It is my mission to help my fellow therapists gain the skills and competence needed to add substance use to their scope of practice. So join me each week as we talk about All Things Substance.
Welcome back to the All Things Substance Podcast. This is episode 112. We’re continuing in our private practice edition series. If you didn’t have a chance to listen to my interview with Dr. Amber Lyda last week. I encourage you to go check that out.
Amber is a remarkable woman and therapist who has created something really special. She truly believes that as therapists we can do our work in a way that brings freedom and flexibility and that we can be in flow, as she calls it, where we feel really good about the way that our work is unfolding.
Today we’re gonna be talking about the idea of nonprofits versus for-profit. Perhaps most of you didn’t have the struggle that I had changing from nonprofit to for-profit. Let me tell you my story. I grew up in a world of nonprofits. My mom was a grant writer for a number of nonprofit agencies over my childhood. I remember hearing the typewriter clacking away as she finished grant applications. Later, of course, would be a computer that was printing on a dot matrix printer to get everything pulled together.
She would be racing down to the Kinko’s store or something equivalent to get there by a deadline to make sure that it was postmarked. Grant applications were something I didn’t know a ton about, but I knew were really important, and that when mom was working on a grant, pretty much nothing was gonna get in the way until it was done.
One of the main places my mom worked for was the YWCA in one of the suburbs of Chicago. There were a ton of different programs, and I remember hearing about them all the time. Everyone in my mom’s sphere at the time worked in similar nonprofit agencies.
I grew up with very solid democratic roots. My mom used to say that my grandfather would’ve voted for the donkey if they would’ve run him. I remember being one of three kids that voted for Mondale and Ferraro in my elementary school class that year.
I have always believed it is our job as humans to take care of other people regardless of whether or not they “deserve it”. That was never even a concept that I was aware of. This has become even more stark in the last decade with the political upheaval we have. I have often thought to myself, I don’t know how to explain to people that you should care about other people.
I’ve been committed to the nonprofit world for my entire career. Every place I have worked has served underserved populations, and I thought that I would always be there. Little did I know that I had some judgment, some bias in my heart about people in private practice, but I did. I thought to myself it was fine for them, and maybe I might do some of it someday, but that the real work needed to be done to serve people who were on Medicaid or Medicare. Who couldn’t afford private pay, who couldn’t afford to even pay for copays.
I found myself at odds sometimes with agency budget people because they had opinions about what they wanted me to do, and I had opinions about what we needed to do for the community.
So let’s step into definitions for just a moment. In the United States, companies are basically broken up into nonprofits and for-profits. There are a lot of nuances about what kind of nonprofit or what kind of for-profit you might be in, but that’s the first designation.
A nonprofit organization , has a couple defining features. One of the main ones is that they don’t pay taxes so the profit isn’t there as taxable income. . Not paying taxes applies to all of their purchases and spending as well. That is a huge boon and why a lot of folks want to make sure they have nonprofit status. It’s not simple though.
Being a nonprofit is actually pretty complicated. It’s a legal designation, organized and operated for a collective public or social benefit. Whereas a for-profit gig is generating a profit for its owner. A nonprofit is subject to non distribution, which means they can’t distribute any revenue that’s in excess of their expenses, and they instead have to turn that profit if there is any back into the agency.
Nonprofits have to have all of their finances be available to the public for accountability and openness of all of the things that they’re putting their money into. They’re accountable to donors, founders, volunteers, program recipients and the public. In a nonprofit, there are no owners. Nobody technically owns the business. It is run by a board and there are some other structures that can be in place, but typically there’s a board or trustees, people who volunteer to serve to oversee the company.
There are some nonprofits that are a hundred percent volunteer, but the majority have paid staff. In our field, community mental health is going to be a nonprofit. This doesn’t mean that they don’t make a profit. It just is what they have to do with that excess money once it’s made. There are some rules by which a nonprofit can give bonuses to staff, but each of those rules are very specific. Having a designation as a nonprofit or in the United States, something else we call a 501c3.
There are a ton of requirements. This is not something simple that someone who is an individual practitioner or even a group practice person could easily do. I think this is a misconception that a lot of folks may have about being nonprofit status.
They would have to have a board of directors and bylaws and regular scheduled meetings and audits and a whole bunch of stuff. It is not easy to be a nonprofit, and it’s not for the faint of heart. And so when we go into private practice, we become business owners. For profit business owners.
It can be a really hard shift for therapists to think about making money. When you look at the therapy business world online, there are a lot of folks who have embraced the idea of for-profit, who talk about making multiple six figures. And they talk about it in a way that frankly is cringey to me, and immediately it makes me click off of the page because I am not comfortable with the language they’re using.
So as you are going into private practice, you have to make a switch because you’re no longer just a therapist. You are also now a business owner. You will have a tax id, you will have articles of incorporation for your state. You will have a new kind of taxes that you have to file. You will be writing off expenses. This is all super new for those of us who never thought to own our own business.
So let’s talk about the anatomy of an agency and what goes into staff versus budget. I don’t know if a lot of you have been in management situations where you’ve had to understand these different things, but I wanna try to explain a little bit from the perspective that I have had in the agencies I’ve worked in.
Being in a nonprofit in my experience, only slightly less focused on money than a for-profit gig. Let me explain. In a nonprofit, you still have a finance department. You still have budgets, and you still have goals that you have to meet in order to be financially viable. Nonprofits are funded in a number of different ways.
Typically, there are some grants, there are some donations, there are fundraising events, and in the case of our field, there are services that we provide. We are in community mental health. We’ll be providing therapy or case management, or potentially psychiatry, depending on our agency. Each of those services is worth a certain amount of money when we bill insurance.
Most therapy offices that are non-profit are not gonna be having a lot of private pay clients. They may, but private pay clients tend to be searching out individual practitioners for the most part, unless that agency has someone that’s in high demand.
Each department has a budget based on the number of what we call FTEs, so that’s full-time equivalent. A full-time equivalent.
So one FTE is one full-time staff person. Five FTEs is five full-time staff persons, or there could be some other configuration. Perhaps there’s people who are a 0.6 FTE or a 0.2 or a 0.8, and this has to do with how much time they’re spending in a given department or agency.
They’re a salary that is part of their FTE, but also their benefits package. When agencies are figuring out benefits packages, typically that adds another 25 to 30% for benefits. So whatever your salary is, add another 25% to that and that’s how much they’re budgeting for you. They budget this for each staff person in the agency, whether or not you accept their insurance or not. Because the budget can’t fluctuate just because this person uses their spouse’s insurance and this person doesn’t.
To make it simple, it’s all people across the board. Then each department is allocated a portion of the costs which includes things like the building, the lights, an amount for furniture and depreciation of the furniture and computers. That department pays a portion of administration costs, so the CEO, the CFO, administrative support people, and the billing department. Everybody , who is a non-revenue producing member of the agency goes into shared costs and shared costs gets divided based on the number of FTEs in the department.
So if there’s an outpatient therapy department, those are the revenue producing folks. Those folks have to pay their share of supporting the rest of the non-revenue producing. So when you are billing for clients, you are not just covering your salary and your benefits.
That is a portion of what you’re covering, but you also are helping to cover the rest of the agency. That is how it works. Because somebody answers the phones and somebody does the payroll and somebody does credentialing to make sure that you can bill insurance and somebody sends the claims in to make sure that people get paid and there’s a person who is the CEO or the director and they are interfacing with the board members and getting budgets approved.
Anytime there needs to be a change to the number of staff or anything major, it has to get run by the board. It can’t just be something that the agency decide. That’s why there have to be board meetings on a regular basis, and these things are brought to them. Some boards have more control than others, and some boards do more work than others. There are boards where I have felt like they were just rubber stamping everything and didn’t really get the information that was being presented. And then there were others that I felt like were way overly involved who didn’t really understand the business and how we had to do things.
When expenses come up, like let’s say a new electronic health record that typically in a medium sized agency has like a million dollar price tag, if not more. Well, if that wasn’t in the budget, then the agency has to figure out how to come up with a million dollars. They’ll be applying for grants for all sorts of things. And then we’ll have to prove that we met those numbers, so somebody has to administer those grants. Track data.
All of this is incredibly complicated and it is pretty much the same in a for-profit gig except for the grant thing, which typically you have to be a 501c3 nonprofit in order to apply for a lot of grants, especially federal grants. But in a for-profit gig, then you’re not answering to the board, you’re answering to the owners. And if it’s a publicly traded company, the investors.
For us, when you are a supervisor or the director of a nonprofit agency, the budget is king. Every decision we make about our staff and their time impacts the budget, how much vacation they get, how much sick time they get, how much supervision we do, how much travel time you get if you’re going to different sites. All of that changes what we’re able to do in the agency about pay raises and new furniture or new spaces, and it is complicated.
It is very hard to focus on retaining staff and helping them feel supported and manage the budget. This is not even including the fact that there’s a thing called a realization rate. A realization rate is how much of the billed services you actually collect.
So imagine that you have a bag of Chips Ahoy cookies, and if you’ve ever had Chips Ahoy cookies, you know that some of the cookies don’t stay in cookie form. They crumble. And so the idea is once you take all the cookies out, how much are crumbs in the bottom?
Is it half the bag? Then your realization rate is 50%. Is it 75% that you got in cookie form? Whatever’s left in the bag is something that we have to budget for. Agencies have to budget that some of the billed services won’t be collected. I have seen realization rates at 20%. That means that 20% of all the billed services didn’t get collected. Imagine that your department at your community mental health agency didn’t collect 20% of what you billed. That’s outrageous. And when I figured that out I was furious.
My team had a culture of you get your paperwork done and you do it right and you get it done on time. That’s the culture I stepped into when I came to the agency and that we kept going. We knew that we didn’t have a lot of money and that we had to be really careful and make sure we were doing prior aths and that we were doing documentation in a timely manner, and diagnosis codes were appropriate, especially when we moved to the DSM five and you couldn’t bill an n os and not otherwise specified code anymore because it wouldn’t get paid.
A realization rate at 20% is not sustainable. That means that everybody who’s a revenue producing person has to make up that difference. So they have to do more sessions because they’re not gonna get paid for all of them. If you knew that 20% of the work you did for your agency wasn’t getting reimbursed, wouldn’t that be maddening for you?
It was for me when I found that out I went digging, I knew that asking staff to do more visits was not sustainable. So I talked to our C F O at the time and asked him to send me the data of what we weren’t collecting. and he sent me an Excel spreadsheet for a certain period of time that had 17,000 lines of data.
All of these were claims from my department and they had all failed. It took me quite a bit of time to sort through, but what I found was eight different places that the system was breaking and that needed to be fixed. We were leaking money in eight different places.
It started with intake and training the intake staff to make sure that they were putting clients with the right therapists. So having therapists that were seeing Medicare clients or someone who had a Medicare plan, even if they had secondary insurance, that person can’t see anyone but an MSW. But if the intake staff don’t know Then they just assume that a therapist is a therapist, is a therapist.
I found credentialing that had expired that nobody knew, and so we were sending claims and they were failing because the person’s credentialing had run out. Another place was the primary diagnosis code that was put in is not a billable code.
For all of the work that we were able to do, we got our realization rate down to 6%. That is a doable number. It’s not great because I’d rather it be at 0%, but 6% with the size of the department was doable. That meant that we were billing everything that we could and collecting everything possible.
When it comes to doing agency work, therapists are often just confused about how much they’re getting paid versus how much they’re bringing in. There aren’t a lot of ways to change the budget in an agency. There are three things you can do.
You can increase the amount of money you’re bringing in by increasing productivity. You can decrease spending by cutting corners on things like supplies or benefit packages or you could try to raise fees. However, negotiating insurance contracts is, in my experience, next to impossible. Insurance, pay whatever they’re gonna pay. And so raising a fee on a piece of paper doesn’t do anything because the majority of people coming into a community, mental health agency are paying what they pay.
All of this means that wages have stayed pretty stagnant and that in certain parts of the country, therapists are still not making a lot of money. This is what’s leading a lot of folks to turn to private practice. When they turn to private practice, they enter the world of for profit business. They become the one for whom the profits benefit.
In a group practice situation, this means that the owner, the person who is paying the bills, takes a split. The therapist is producing billable hours and they get a portion of the income while the other portion goes to the owner to cover things like rent, electronic health record, advertising, billing, credentialing, et cetera. I think the most common split I’ve seen is 60-40, which is 60% goes to the therapist, 40% goes to the practice owner.
Working for a group practice means you will not get a hundred percent of what you’re making. You will get a split. If you go into business for yourself, then you can keep a hundred percent minus your expenses, of course, but that’s a different choice with different challenges.
The idea of private practice being the future of our work means that we all have to start thinking about things that we never thought about before. We worked for an agency. And I’ve even heard therapists say things like, I don’t worry about the money that’s someone else’s problem. I just wanna do my.
And in most ways I can understand that because our job is to sit and to help people through difficult things. Most people aren’t coming to therapy because they’re having a great day. Most people are coming to therapy because things are hard. However, therapists often start to feel the squeeze because when a client cancels or no-shows, we don’t have any power over that. But it does affect your billable hours. and every agency I’ve heard of has billable hour expectations. Because they have to be able to budget, they have to be able to predict how much money they’re gonna make so that they know what they can spend on things.
Even if they’re nonprofit, nobody’s there to back them up. Nobody’s there to bail them out. There is a finite amount of money, and if a nonprofit falls in the red, they have to figure out a way to make that up. They have to either apply for more grants, which requires more work because nobody is just handed out money, or they have to use a line of credit, or they have to lay people off. They have to do something. But there are no federal bailouts for this.
Is part of why it’s so maddening that there are federal bailouts for huge corporations and banks, even though their CEOs are taking home millions and bonuses, and those bailouts are coming from our taxes, or actually from the deficit that’s supposed to be covered by taxes.
When we start thinking about going into private practice, It can be really challenging because we did not get trained in business, and there are a lot of things that you have to consider. Understanding what’s happening in your nonprofit can make things a little less maddening if you can understand where the budget is and what’s happening.
I think that people who are revenue generating staff, would do well to ask questions about where the money is being spent. What is the budget, why are they spending this much money on this, that, or the other thing? Why do we have potentially more staff in this department? You are making the money to cover those people’s salaries, and it means that there’s less money left over for things like raises.
Every year, productivity expectations are going to go up because costs go up. If there are costs of living raises each year, that has to come from somewhere. So if you get a 3% raise, that most people expect and consider a bare minimum that has to come from somewhere. So either there needs to be costs cut down or billable hours went up, or somehow fees were getting raised and collected.
You can see the complexity here and this is why agency work is a problem. Because insurance companies are in it to make money. They are for profit and they are not going to want to raise their fees. There is a finite amount that insurance companies are going to be willing to raise their numbers. And yet every year employees need raises because we need to be able to keep up with the cost of.
Eventually, therapists get to the point of feeling like they’re working all the time. They don’t have support, they don’t have any kind of consultation or supervision, and all that matters is productivity or billable hours, and they get burned out and they can’t handle it.
We can only see a finite number of people every week. We cannot keep going. There are some people you will see who are like, I see 40 clients a week and I am just fine, and that’s not sustainable, and that person can do whatever they want. I have gotten into numerous tense conversations with upper management, about productivity hours. A productivity expectation of 25 clients a week. isn’t enough to cover the budget. That’s why they keep pushing it higher and higher.
And in a nonprofit agency, it is not about trying to make someone money. It is because in the black and white budget, the expenses don’t match. If they add another revenue generating staff they have to make sure that that person is gonna bring in enough money to cover their salary plus their part of the shared costs.
This is a complicated mix, and agencies in some ways have their hands tied , and I’m sure there are some agencies that are mismanaging things. Eventually people start feeling like, I can’t do this agency work anymore, and they look at private practice.
In the private practice world, there are challenges like if you get sick, there’s no sick time. There’s no short-term disability, there’s no health insurance, you have to do all of that by yourself, and it can feel really daunting. I also still believe that private practice is the place that we are headed.
The shift from nonprofit to for-profit seemed black and white to me early in my career. It wasn’t until later when I understood the business better and I understood what went into having an agency that I understood the difference.
The nonprofit meant that we could save money by not paying taxes, that we could get grants. Meant that we had money that we didn’t have to use billable hours for, and that all of those things made up the budget and made things possible.
In the for-profit world they need to do the same things, all the same costs, but because they don’t have grants, then they need more billable time and less non-revenue generating staff. That is really the difference. In the business world where it’s not therapy and human service related, it is clear to them that they have to run more skeleton, crew, non-revenue generating staff, and that those who are generating revenue have to do so at high levels.
For us as agencies have to get tighter and tighter margins, there will come a point where the productivity expectations become, not do. And you feel like you don’t have enough work-life balance, and you feel like you’re always being asked to take more clients and to discharge people who are no-showing, even though you know what’s going on in their life.
That tension is what draws a lot of us into private practice. That means we are becoming either practice owners or we’re going to be working for a group practice where that person is the practice owner, and it is a for-profit gig. This is putting us as therapists in a brand new space that we had pretty much no training or schooling in and so we’re turning to each other on the internet to try to figure this stuff out.
Next week we’re gonna be talking about the next and logical topic, which is taking insurance in private practice or private pay. I hope you’ll join me for that podcast and until then, have a great week.
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