If you you are considering starting your own practice or purchasing an existing practice, ponder these points before you plunge in.
In the business world, the term Independent Contractor usually refers to a person who contracts himself out (receives money for services), i.e., an independent fill-in doctor. However, in the chiropractic profession, the usual definition of an Independent Contractor is when one DC leases space from another DC, each DC having a totally independent practice, thus the title Independent Contractor.
When a start-up doctor leases space from an established doctor, the lease is usually for the use of the entire office, including telephones, adjusting tables, exam equipment, X-ray, and the staff that files his insurance, applies therapy, makes appointments, etc.
In some cases, the Independent Contractor may elect to pay for specialized adjusting equipment, etc., everything being negotiable.
The Advantages of an Independent Contractor Arrangement for a Start-Up Doctor
• Lower start-up costs compared to starting a solo practice.
• Little or no investment, unless the start-up doctor chooses to purchase equipment.
• Net profit is attained faster because of a fixed, and lower overhead.
• The start-up doctor is practicing in a known proven location that is already recognized as a good chiropractic office by the community.
• The established doctor has no control over how or when the start-up doctor practices.
• The start-up doctor has an affiliation with a successful DC, which provides psychological and clinical support.
• If he’s smart, the start-up doctor will seek the advice of the established doctor and allow himself to learn from someone else’s experience.
This is the least expensive way to start a practice but it is also a very risky undertaking. Please read the following disadvantages section carefully.
The Disadvantages of an Independent Contractor Arrangement for a Start-Up Doctor
• The start-up doctor is in competition with the established DC, which will cause stress between the two doctors.
• Practice growth will eventually come to a halt because of space restraints. As both doctors build their practices, something has to give. The new practitioner is usually evicted.
• There is a loss of independence because the start-up doctor has no say regarding the management of the staff or how the practice is run, etc.
• The start-up doctor is always considered second to the established doctor by the staff. This is natural, considering who pays their wages.
• The start-up doctor will not be able to resolve staff problems or alter office procedures without the consent of the established doctor. Remember, the staff is loyal to the established doctor, not you.
• There is always the threat to the start-up doctor that he will be thrown out. And, while the start-up doctor tries to acquire and remodel a new location, his patients will stay and be lost to the established practitioner.
• If the start-up doctor practices with a less than successful established doctor, he will pick up bad practice habits that will plague him for the remainder of his life.
Special Independent Contractor Benefits for the Established Doctor
• His office should be open longer hours and, therefore, be able to attract and see more patients.
• He will enjoy a somewhat passive income. The more successful the start-up doctor, the more money the established doctor receives.
• He’s collecting rent for his office and equipment while he’s not there.
• If he has a lot of extra space, the established doctor can place multiple start-up doctors into his office, thereby multiplying his income.
• He has a built-in buyer if he can no longer practice, passes away, or retires.
• He has a built-in vacation doctor. Patients will be treated by someone they know, and not a stranger, who comes in once a year.
Rules to Follow
The start-up doctor is not to sign a non-competition agreement for several reasons. One is that, if he is ever evicted, he will be forced to practice so far away that he will lose all of his existing patients. Another important reason is that the IRS will probably deny the start-up doctor independent contractor status and declare him an employee.
The start-up doctor needs a clause in his contract that states he cannot be thrown out without at least ninety days notice. There should be a severe penalty for the established doctor in the event he violates this provision.
Both doctors should sign a non-solicitation clause, which prohibits them from soliciting the patients of the other doctor.
The start-up doctor must be allowed to put up his own office sign, the same size as the established doctor’s. Also, when the start-up doctor leaves, he can take the sign with him.
The start-up doctor should ask for a clause that states, “In the event the established doctor becomes ill or passes away, the start-up doctor has the right of first refusal to buy the practice.” The established doctor should want a similar clause unless he has children or heirs that could take over the practice.
Any new patients that are not direct referrals will be allotted to each doctor on a rotation basis.
Make sure the contract states the start-up doctor owns his patient files. If not, the IRS will classify the start-up doctor as an employee.
And, when the leasing-of-space agreement is drawn up, I recommend the term Independent Contractor not be used because of a possible confusion on the part of the IRS between the business world’s and the chiropractic profession’s definitions of Independent Contractor, as stated in the first paragraph of this article.
Pay Scale for an Independent Contractor
If the start-up doctor states in his contract that he is paying a percentage of his practice to another doctor, this is a direct violation of the Federal Kick-back Statutes, and the IRS will probably classify the start-up doctor as an “employee” rather than Independent Contractor.
The contract should state the agreement is an escalating leasing-of-space agreement. Example: $500 a month lease for the first three months; months four through six would be at a $1,000 lease rate; the next three months would be at a $1,500 a month lease rate, etc.
The start-up doctor is responsible for his expenses pertaining to conventions, post-graduate seminars, licensing fees, advertising, and malpractice insurance.
Does the Independent Contractor relationship seem complicated?
Yes, it is. No one should enter into an Independent Contractor agreement without having a consultant represent him so he can get the most benefits possible out of the relationship.
Do these relationships work?
No! Partnerships don’t work and an Independent Contractor is a pseudo-partnership.
My advice to the start-up doctor, who signs such an agreement, is to immediately start saving money to open your own practice. Odds are you will be out on your own within twenty-four months.
Think about it. Do you want to suffer through the work and expense of opening two different practices within a 24-month period of time? That should be motivation enough to start your new practice from scratch and not as an Independent Contractor.
Dr. Peter G. Fernandez is a world authority on starting a practice. He has thirty years’ experience in starting new practices, has written four books and numerous articles on the subject and has consulted in the opening of over 3,000 new practices and the purchasing of hundreds of practices.
Please contact Dr. Fernandez at 10733 57th Avenue North, Seminole, Florida, 33772; Phone 727-392-0822, 1-800-882-4476 or Fax 727-392-0489, or visit www.drfernandez.com.