Fee splitting, especially at a 60/40 ratio, seems to be the biggest mistake owners in the field of mental health and psychiatry make. These 60/40 splits are one of the quickest ways to bankrupt your private practice at rapid speeds. Simply put, this model is financially unsound and sets you up for failure. If you presented a business plan like this in an MBA program, you’d fail outright. Here’s why: paying 60% of your revenue to labor leaves no room to cover the actual costs of running a business—let alone growing it.
Why Fee Splitting at 60/40 Fails Financially
1. Labor Costs at 60%: It Doesn’t Add Up
Paying 60% of your revenue to labor might seem like a fair deal, but it’s a disastrous move when you account for all the additional expenses tied to employment. For simplicity’s sake, let’s assume your session fee is $100. At a 60/40 split, $60 goes to the clinician, and $40 remains with the practice.
But that $60 payment doesn’t stop there—it comes with additional costs:
- Payroll taxes
- Social Security, Medicare, FUTA
- Unemployment insurance
After you add these taxes and fees, the actual cost to your practice for paying someone $60 per session is $79.00.
But They’re a 1099, So I Don’t Pay Taxes…
Even if you remove payroll, wage, and unemployment insurance, you’re only saving yourself about $9.00 per hour. They are still costing you at least $70.00 per hour. That’s assuming you have no other expenses such as software, marketing, utilities, phones, computers, supervision, office space, office supplies, licensing, and corporate malpractice. The list of expenses can go on and on.
2. Supervision Costs: The Hidden Expense
Many of the clinicians you hire at this rate still need supervision to maintain their licenses. If you provide free supervision, it’s another hidden cost. Here’s an example:
- A clinician sees 10 clients a week.
- You provide free supervision valued at $100/session.
- Divide this cost by their client load: $100 ÷ 10 = $10 per session extra they cost your practice.
So that $70 to $79 above? Add $10 to it. Now we’re at $80-$89 per session.
3. What About Next Year?
You should expect employees and contractors to want raises each year; a standard raise is 3-5%, minimum. By the time most people calculate the two factors above, they are already overspending. The idea of giving raises the following year becomes out of the question.
4. Inequality Claims Waiting to Happen
Imagine this nightmare: Sally and Becky are both on a 60/40 split at your practice and both see 30 clients a week. Sally comes to you distraught after finding out that Becky also sees 30 clients a week but makes 40% more than her; she demands to know WHY.
Ready, set, GO—explain why this has happened to Sally and what you’ll do to rectify it, if anything.
How This Model Leads to Bankruptcy
A healthy business reinvests 33% of its revenue into growth, such as marketing, training, client retention, and technology upgrades. But with 93% or more of your revenue already consumed by labor, taxes, and overhead, there’s nothing left to reinvest—or to take home as profit.
The Vicious Cycle of Financial Ruin
- You can’t invest in marketing, so you don’t get new clients.
- Without new clients, your revenue stagnates.
- Over time, rising costs (inflation, rent increases) outpace your revenue.
Eventually, your practice collapses under the weight of unsustainable expenses. This happens every month, with practices closing because they ran themselves into financial ruin using this very 60/40 model.
The Bigger Issue: Hiring the Wrong People
Fee splitting often attracts staff who prioritize their paycheck over clients’ health and well-being. These individuals may argue over terms before they’re even hired, challenging your leadership and policies. This behavior is a red flag for future insubordination.
As the practice owner, you bear all the liability—legal, financial, and reputational. It’s your responsibility to set boundaries and hire staff who respect your role as the leader and understand the value of contributing to a sustainable business.
Industry Example: Why Corporate Models Don’t Use 60/40
Major healthcare organizations avoid fee-splitting models because they’re unsustainable. Instead, they offer clinicians flat hourly rates or salaries with performance-based incentives. These models account for the full cost of labor and ensure the business remains profitable.
What You Can Do Instead
1. Get a Grip on Financial Basics
You can’t afford to ignore math as a private practice owner. If calculating labor costs, overhead, and profit margins feels overwhelming, work with a business advisor or take a course on financial management. Understanding these numbers is essential for long-term success. Work with experienced consultants for comprehensive financial and operational solutions.
2. Set Boundaries with Staff
Stop hiring people who argue with you before they even start. You’re the owner and the one liable for everything that happens in your practice. Hire individuals who align with your vision and respect your leadership.
3. Adopt Sustainable Compensation Models
Consider alternatives to the 60/40 split, such as:
- Flat hourly rates that align with your revenue and overhead.
- Productivity-based bonuses to reward high-performing staff.
- Cost-sharing for supervision to offset hidden expenses.
Discover advanced strategies for healthcare practice growth and sustainability.
Final Thoughts
Fee splitting at 60/40 isn’t just a bad idea—it’s a financial death sentence. It drains your resources, limits growth, and jeopardizes your practice’s sustainability. By adopting sound financial practices and setting clear boundaries, you can build a thriving, profitable business.
If you’re ready to stop the bleeding and create a sustainable practice, contact a business advisor today. Math isn’t optional—it’s the foundation of your success. Don’t let bad financial decisions sink your dreams. Take control now.
