4 Ways Private Practice Therapists Get Paid

If you’re a therapist considering going into private practice, or you’re a practice owner trying to figure out fair compensation for independent contractors, you’ve probably wondered which payment structure is best. It’s a question often asked but not often answered. But understanding how private practice therapists get paid is absolutely critical when providing or receiving fair compensation.

This article shares 4 ways private practice therapists get paid, whether they are solo entrepreneurs or independent contractors working in a private practice.

When it comes to how private practice therapists get paid, there are essentially four payment structures:

Running your own solo practice and charging clients per session,
Running your own solo practice and billing health insurance providers
Working as an independent contractor for someone else’s established practice through a therapist payment split arrangement, or
Being hired as an employee and being paid on an hourly or salaried basis in someone else’s practice.

Running Your Own Private Practice

In a solo practice, you’re the captain of your own ship. You choose the amount you charge and ways you accept payment. You set your own private practice policies, terms, and rate. You also get to decide if your practice will direct bill insurance companies and which ones to panel with.

While every dollar that comes into the practice goes directly into your practice, running a private practice comes with significant responsibilities and some important distinctions depending on how you structure your payment model. When you run your own practice, you’re responsible for everything from client marketing to managing insurance billing to managing all administrative tasks securing that keep your practice running.

In this section, we’ll discuss the pros and cons of having private pay clients and accepting insurance payments in private practice.

1. Accepting Private Pay Clients in Private Practice

When accepting private pay clients this means clients pay you directly for your services without involving insurance companies. Whether they pay you in cash, credit card, or through electronic funds transfer (EFT) is completely up to you. In private practice, this is the most common and straightforward payment model.

Pros:

With private pay you keep 100% of your session rate
You have complete control over how you set your fees
There’s less administrative work than when dealing with insurance companies as claims can be denied or there could be reimbursement delays
You receive immediate payment (typically collected at time of service or shortly thereafter)
You have the freedom to see clients for as many or few sessions as clinically appropriate without external limitations

Cons:

Smaller potential client pool as not everyone can afford private pay therapy and some potential clients may want to see a therapist who can accept and direct bill their insurance provider
Clients may terminate prematurely due to cost rather than clinical readiness
Marketing becomes paramount as it’s your main way to find clients
Some clients specifically seek insurance-covered services and won’t consider private pay.

2. Accepting Insurance In Private Practice

Accepting Insurance in the United States

Accepting insurance in the US means you become a contracted provider with insurance companies, agreeing to accept their predetermined reimbursement rates in exchange for being listed in their provider directory.

When you accept insurance, you apply to be “in-network” or “paneled” with various insurance companies. Each company has different credentialing requirements, reimbursement rates, and administrative procedures. Once approved, you agree to accept their contracted rate for services —which is often much lower than your private pay rate.

Accepting Insurance in Canada

As many Canadians have extended health benefits through their employers, they often search for therapists who can direct bill their insurance company.

In Canada, accepting insurance is less cumbersome than in the US. To accept and direct bill insurance providers in Canada, you’ll be required to register with the main insurance providers individually. And once approved, you’ll be able to process claims quickly.

Fortunately for Canadian therapists, insurance providers typically pay out the therapist’s full rate of pay — providing the client’s health plan doesn’t have a maximum dollar per session limit.

In addition, for therapist’s who do not offer direct billing as a part of their payment model, typically clients have the option to submit their receipt to their insurance provider on their own behalf for a reimbursement after the session is complete.

However, unlike the US, many insurance companies in Canada do not have easy-to-access provider directory for clients to find therapists who direct bill. As a result, it is less likely for approved therapists in Canada to receive consistent referrals through insurance providers directly.

Pros:

Opens the door to a much larger client pool
Clients may be more inclined to commit to ongoing therapy when insurance covers it
Provides mental health access to clients who couldn’t otherwise afford therapy
Less marketing necessary as insurance panels drive referrals (in the US)
May feel more mission-aligned for therapists focused on providing accessible services.

Cons:

Significantly reduced income per session (in the US)
Additional administrative work such as credentialing, claims submission, denial management, pre-authorizations etc.
Delayed payment as you may have to wait weeks for reimbursement from insurance companies
Insurance companies may deny claims or require resubmission.
May require to client’s diagnoses and justification for medical necessity (in the US)
Session limits may be imposed by insurance companies regardless of clinical need
May need to hire billing specialist or administrative assistant to process pre-approvals and submit claims in the timely manner

The best part is that as a solo practitioner you can use a hybrid model where you can accept both insurance payments and maintain private pay clients as well.

3. Working as an Independent Contractor with a Therapist Payment Split

The alternative to solo practice is joining an established practice as an independent contractor and be paid through a therapist payment split arrangement. In this model, the practice owner conducts most of the administrative and marketing tasks while you focus primarily on providing therapy to clients.

An arrangement can be particularly attractive for newer therapists who simply don’t want to manage the aspects of running a business. However, understanding how private practice therapists get paid in therapist payment split arrangements requires looking at the specific split percentages and what they mean for both the practice owner and the contracting therapist.

The most common payment splits in private practice include:

80/20 Split in Private Practice
70/30 Split in Private Practice
60/40 Split in Private Practice

80/20 Split in Private Practice

In an 80/20 split in private practice, the therapist receives 80% of the session fee while the practice owner keeps 20%.

Pros for the Therapist:

Therapist receives a substantial majority of the revenue generated from the session.
The practice covers overhead while therapist keeps most of the earnings.
Depending on the session rate, contractor income can be close to solo practice income, without the business stress.

Cons for the Therapist

Therapist still give up 20% of earnings (in comparison to keeping 100% of private practice revenue).
Therapist has less autonomy than running a private practice.
Therapist is building someone else’s practice instead of their own.

Pros for the Practice Owner

The practice compensation structure will be competitive in attracting therapists to work for the practice.

Cons for the Practice Owner

Practice owners will have a very narrow profit margin to cover overhead costs such as rent, administrative support, billing, and marketing, while still trying to leave room for profit.
Practices may have difficulty in sustaining rate long-term unless they are operating at significant scale or have very low overhead to pay for.

70/30 Split in Private Practice

A 70/30 split in private practice means the therapist receives 70% while the practice owner retains 30%.

Pros for the Therapist

Therapist still receives a strong majority of the session revenue.

Cons for the Therapist:

Therapist takes home less than an 80/20 split.
Depending on the starting rate per session, therapists may feel that their sacrificing too much if the practice doesn’t provide enough benefits in return.

Pros for the Practice Owner

A 70/30 split is more financially feasible than an 80/20.
With increased revenue into the practice, practice owners have more to re-invest back into the business, benefiting the practice and therapists alike.

Cons for the Practice Owner

An increase in revenue may result in contactors requesting additional resources or benefits from the practice in return.
Practice owner will need to monitor the sustainability of a 30% split in order to keep the practice running.

60/40 Split in Private Practice

In a 60/40 split in private practice, therapists keep 60% while practice owners retain 40% per session.

Pros for the Therapist

Therapist is still earning the majority of session fees.
Practice is likely to offer more resources in return for compensation (i.e. office space, access to practice management software, etc.)
A 60/40 split in private practice is more sustainable for practices allowing the practice owners the opportunity to reinvest into the business such as marketing.

Cons for the Therapist

Therapist is giving up 40% of earnings.
Therapist may feel under-compensated.
Therapist could earn significantly more in solo practice or with higher payment splits
Risk of therapist resentment towards the practice, if the practice doesn’t provide perceived value to the therapist.

Pros for the Practice Owner

Healthy payment split for practice sustainability.
Additional revenue for practice to invest in administrative support, marketing, and practice growth.

Cons for the Practice Owner

More likely to face criticism by therapists about fairness of therapist payment split.
Higher likely of therapist turnover as independent contractors seek better payment arrangements.
More pressure to provide additional benefits to justify the 40% retention.

4. Being an Employee at a Practice

Another common payment structure is being an employee rather than an independent contractor. As an employee, you receive either an hourly wage or a salary rather than a percentage of session fees. In this type of arrangement, the practice handles all taxes, provides workers’ compensation insurance, and may offer benefits like health insurance, paid time off, retirement contributions, and continuing education allowances.

As an employee, you typically work a set number of hours but you have less autonomy than being an independent contractor or solo practitioner. In saying that, employees often have more legal protections under employment laws than independent contractors do.

While the rate of pay for employees vary widely, typically the pay is much lower per hour than what one might make within a payment split. It’s not uncommon to see wage between $30 to $50 per hour for a therapist in an employee arrangement. But it does offer guaranteed hours per week compared to an independent contractor relationship where contractors work only as client appointments become available.

Pros:

You receive predictable income regardless of how many clients you see.
You may receive a benefit package which could include health insurance, pension plans, paid vacation, sick leave, and continuing education funds etc.
Taxes are automatically withheld so you do not have to estimate tax payments
Unless you’re in a management position, you’re unlikely to be required to conduct business management or major administrative tasks
There’s a potential for unemployment benefits or maternity leave coverage
There’s Minimal to no overhead costs associated with being employed
Office space, supplies, and administrative support all provided
Ideal for new graduates looking to build their clinical skills

Cons:

It’s the lowest earning potential of all the models discussed
You’ll have limited control over rate of pay, policies, or business decisions
You’ll be required to work specific hours set by the employer
There’s less flexibility and freedom in scheduling and time off
You may be required to see clients outside of your preferred practice niche.
You’ll have limited clinical autonomy as you may be expected to follow agency policies and procedures that do not align with your practice values or clinical assessment.
You’re more likely to have to prove billable hour requirements than other structures

Conclusion

The question of how private practice therapists get paid isn’t a one-size-fits-all answer. Different payment structures may work for different people. Some therapists may prefer going out on their own and accepting private pay clients or insurance payments, others may prefer choose to work as an independent contractor and avoid the hassle of business tasks. While others prefer the stability and predictability of employment relationships.

Regardless of one’s choice, the best payment models are those that are mutual beneficial and perceived as fair among all parties involved. When both the practice owner and therapist feel they are fairly compensated for what they contribute, everyone wins.

4 Ways Private Practice Therapists Get Paid