Dr. Jeremy Sharp (00:00)
Hey folks, welcome back to the podcast. I’m glad to be here with you. Today we are starting Pillar 2 of the March Sprint. So if you didn’t listen to Pillar 1, it was all about clinical topics. You can go back and check that out from last week. There are four episodes on various clinical topics. But today we’re starting Pillar 2, which is all about business. And today’s episode is all about reverse engineering your hourly rate.
So we’re shifting gears from the clinical area over to the business side. And I want to start with a question that most clinicians answer incorrectly. And that question is, how much is one hour of your time worth? If you answer that by telling me what the psychologist down the street is charging or what the local insurance company reimburses for the different CPT codes, you have fallen into something called market average trap.
which means you’re letting external forces dictate the healthier practice without necessarily looking at your own balance sheet or ⁓ determining your own rate based on the specific factors in your practice. Now, if you are one of those folks who has dialed in your hourly rate, that is great. You’re definitely closer than many folks in this discussion. But there are a lot of people out there who are still not accounting for admin time in this whole equation.
So today we are going to stop guessing and I’m going to talk you through this exercise to reverse engineer your hourly rate based on three non-negotiable factors. One of those is your actual capacity. The other is your overhead. And the third is your financial goals. So you may have heard something similar from Tiffany McLean. I think she was the first one to really talk about reverse engineering, what you want to make. And we’re going to take that and we’re going to go just a little bit deeper.
with that example. If you don’t know Tiffany, you should go check out her podcast. called The Money Sessions, and it’s fabulous. Either way, by the end of this episode, you should have a real hourly rate that actually supports your life. So if this topic and any of the business topics are interesting to you, but you find yourself thinking, ⁓ my gosh, I just need some support and accountability to implement some of these ideas.
Check out Crafted Practice. It is my in-person event that happens every summer. It is all inclusive, which means you just have to get yourself here to northern Colorado. Pretty easy to fly into Denver from most places. And then once you get here, it’s all taken care of. So all the meals, all the lodging, all the coaching. We do small group work. We have implementation time. We keep one another accountable. We have downtime. We get a happy hour. It’s awesome. There are 20 spots.
Some of those are already filled. So go check it out. Love to have you join us. You can go to thetestingpsychologist.com slash crafted practice. All right, let’s transition to this discussion on finding your real hourly rate.
Dr. Jeremy Sharp (03:09)
All right, folks, let’s talk about this hourly rate discussion. And I like the term reverse engineering. I’ll use that multiple times. But a place where we can start is just doing some math. The first step in reverse engineering your rate is defining your actual sustainable capacity. So most of us build our financial models, I think, based on billable hours without necessarily considering the admin time that we spend.
So we might build a model based on, say, 30 build hours a week, or even worse in my mind, ⁓ the number of evaluations that you do per week, which is even vaguer ⁓ for most people. But we’re missing the time that we spend on administrative tasks. So research using a common burnout inventory consistently shows that clinicians in high stakes diagnostic roles, which is us, tend to reach cognitive diminishing returns
faster than those in general practice. So this is important. And there are many of us out there who are just solo practitioners taking care of the admin work in addition to the clinical work. So for a solo assessment clinician, full time usually means somewhere in the neighborhood of 28 to 32 billable client hours each week. But let’s look at the admin drag on that time. So in a lot of practices, ⁓ we’re just talking about the
kind of unbilled support work to make sure that the client work is happening. if you think about a ratio for assessment, I think this ratio is about one to six. for every, let’s say for every six hours of clinical time you spend, you’re gonna spend an hour of unbilled administrative time to make that work. So bringing this to life a little bit more, if you are billing 30 hours of face-to-face time per week,
or billable time per week. You’re likely spending four to five hours of administrative time to handle all the phone calls, the emails, the paperwork, copies, et cetera, inventory, and so forth. So you can scale this up or down depending on how much clinical time you are doing each week, but that’s a ballpark for you to work with. The key is to actually account for this time. OK, so that’s our first step. That’s sort of defining our capacity.
If we’re billing 30 hours a week, that’s actually going to end up being somewhere in the neighborhood of 34, 35 worked hours.
Now that we have established how much we are actually working, we can get into the numbers. So to find your ideal rate, we’re gonna work backward. Step one is to define a goal. And in this case, the goal is how much money you wanna take home. So I encourage people to work with your family or if you’re solo, you can skip that step, but figure out how much money you actually want or need to bring home personally to your personal budget from your…
practice. So in this example, let’s say that you just want kind of a quote unquote fair market salary of 150,000 a year. All right, great. This means that you’re going to bring home somewhere in the neighborhood of 12,000 a month or 12,500 a month.
Okay, so that’s your income goal. Now, step two is adding in the tax and the profit. Now, these are round numbers, right? Like you can dig deep and like really dial this in for your practice, but this is just to bring this example to life a bit. I’m gonna keep it pretty easy. So you need to account for, let’s just say a 20 % tax allocation and a 10 % real profit margin to make sure that you stay in business and you don’t get in trouble if the margins run thin.
So taken together, that’s 20 % for taxes, 10 % for profit. It’s an extra 30 % on top of that $150,000. So that’s going to bring us to about $200,000 for a revenue goal. But we’re going to do another step, and this is the overhead. Assessment is higher overhead, certainly, than therapy. So we want to account for that. This is testing kits and Q-interactive subscriptions and office rent and all kinds of things.
So let’s call this about $40,000 a year or somewhere around 20%. OK, so adding all this up, we have $240,000. This is our total revenue target to flow downward to let you take home $150,000. All right, now we want to look at your billable capacity. This is a key point in this whole equation.
So I like to start with weeks that you will work per year because doing so forces you to think through the concept of vacation and deliberately planning vacation. So in this example, let’s say you want to work 46 weeks a year. This tells me or tells you that you want to have six weeks off. All right, that sounds pretty good. That’s like two weeks over Christmas and New Year’s. ⁓
Maybe two weeks over the summer and a couple random weeks here and there if you get sick or take some other shorter trips or something. All right, so if you to work 46 weeks a year and you know you can sustainably manage 30 billable hours per week, again, which would mean 35 actual hours per week. ⁓ This means that you have a total annual capacity of 13
180 billable hours, right? 46 weeks a year times 30 billable hours per week. This is your capacity. This is what you’re capable of. That is the max number of hours that you will build in a year. So now what do we do? We take our revenue target, which is 240,000, and we divide by 1,380 hours, 1,380 hours. And that equals $173 per hour. And that
is where we finally arrive at our ideal hourly rate. So by billing $173 per hour for 1,380 hours per year, or 30 billable hours a week for 46 weeks, you get to $240,000, which allows you to bring home $150,000. OK, great. So that’s the math. Simple math, right? I know it’s a little tougher to
handle on a podcast, you know, this is audio format, of course, but you can play this back or write it down. It’s pretty simple.
Now the question is, how do you implement this rate? So we have your $173 an hour. This is not unreasonable at all in many markets. In fact, it might be low in quite a few markets, especially in metro markets. But how do you actually implement it? Well, the first step is to actually set this fee appropriately. So let’s say your private pay eval is 15 hours. So you do two of those each week to reach your 30 milliball hours.
If you are private pay and hopefully doing a flat fee per evaluation, which I’ve talked about on prior podcasts, flat fee versus hourly, don’t just set your fee at $173 times 15 hours. You might think, well, why not? I mean, I’m spending 15 hours. This is my hourly rate. No, we want to bring back this concept of admin time. And we’re going to make sure that you get paid for the admin time within your flat fee.
Okay, so I’ll say that one more time. We’re not just accounting for the clinical time, we are also accounting for the admin time in setting your flat fee. So you wanna add in the admin time to make sure you’re getting paid for the entire process. Now, in our example, you need to account for five admin hours per week or on average two and a half per evaluation. So this means your flat fee should actually be $173 per hour times 17.5 instead of 173 times 15.
Okay, so step two in the implementation is doing a true cost audit, okay? So if you are hearing me talk through these numbers in, okay, 15 hours or 17 hours, you might be saying, well, I don’t actually know how much time I’m spending per evaluation. Or maybe it varies, all right? This is pretty normal for folks. So for the next month, let’s say, this is where a great time audit or time log can come into play. And if you wanna do it for real,
Do it for every case you do over the next month. We’re coming up on the first of the month, right? So you could start at ⁓ the first of the month. And just ⁓ take a time log for each e-validate you do over the next month. So you clock in when you start the intake, you clock out when you finish the report. And if you need help, like software to do this for you, there’s a great one called Toggle. It’s T-O-G-G-L. ⁓
It’s pretty easy. There are also plenty of time tracking softwares out there to help you do this with fidelity. But I think most folks are shocked when they do time audits because they find that the flat fee for the entire evaluation is actually paying you like $85 an hour once you account for all of the total time that you spend on an evaluation.
Time that we spend on evals ⁓ tends to fall into that same category as money that we’re spending or calories that we’re eating in that we underestimate until we actually start to track. And then we find, ⁓ it’s actually a lot more than we thought. And then the final step is adjusting for insurance reimbursement if that is part of your practice. So in the next episode, we’re going to talk in a little more detail about CPT codes and billing.
Short story is that if insurance capture hourly rate on $150 and your real hourly rate is 173 to hit your income goal, you have a $23 per hour deficit and you have to find a way to make that up. So you can either change your income goal to match insurance reimbursement or change your model to incorporate more private pay or you have to.
radically increase your efficiency to reduce the amount of administrative time that you’re spending and thereby kind of indirectly up your hourly rate because you are spending less time on the evaluation.
So all that said, I wanna end on a thought about the ethics of business. So anytime that we’re talking about money and fees and so forth, there’s a lot of feelings, a lot of reactions. In our field, we often feel guilty about charging higher rates. And for many of you, mean, 173 might not be high, for some it might, for some it might not. But, I will say this, a clinician who is financially stressed is a clinician who rushes the data,
⁓ ignores validity red flags and brights, know, score dumping templated reports because they don’t have the time or the cognitive energy to do a thorough data synthesis and conceptualization. So in my mind, pricing your services correctly is a clinical intervention, if nothing else. It buys you the time to be the expert that your patients, clients think that they are hiring.
So next time, like I said, we’re to get even more granular with this. We’re going to do a reimbursement discussion where we’ll analyze average rates for some of the most common CPT codes for assessment and talk about the strategy to maximize your return on every evaluation if you are playing the insurance game. So I hope to see you next time. And as always, thank you for listening.
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