Seeing more money

With demand so high, why don’t clinicians see more money?

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With demand as high as it is, why don’t clinicians see more money in their pockets? Isn’t high demand supposed to translate into higher prices and, ultimately, more take-home pay? Well, yes, in theory, but in real life, there are structural, built-in limitations on take-home pay in the mental health world. These conspire to keep us from seeing more money.

Let’s start with the theory and then get into the real world.

The rule of supply and demand

Typically, prices rise when demand for a product or service outstrips supply. This pattern is part of the law of supply and demand. And there is no question that right now, the demand for mental health services has never been higher. Certainly, demand is much higher than providers can supply. So shouldn’t the price for psychotherapy go up until it reaches a new equilibrium point? Yes, it should, but other factors are at play in the mental health system. 

Reasons why the law of supply and demand does not work in mental health

Most mental health service is not purely market-driven. Most private practice providers work in insurance-dependent organizations, meaning insurance companies control the fees that are paid for a service. The consumer pays a small part of the fees via co-pays and deductibles, but the insurance company pays the bulk of any reimbursement for services. And the insurance companies, in exchange for access to their enrollees, set a cap on the amount they will pay per session. 

Furthermore, not-for-profit (NFP) mental health organizations, another significant segment of the mental health system, are even less connected to the ways markets might price psychotherapy. Even though insurance reimbursement is becoming a more substantial aspect of NFP income, most of their money still comes from grants and private contributions. Additionally, the typical mission of NFPs is to work with segments of the public that do not have many resources. Therefore, market-driven pricing is not driving practitioner salaries.

What would market-driven pricing look like?

In contrast, we can imagine a system where the pricing for mental health services is purely market-driven. In that sort of system, service fees would increase as demand increased. The price for psychotherapy would eventually rise till reaching the limit people were willing to pay, i.e., a new equilibrium between demand and price. 

Consequently, market-driven pricing would raise the price for each session based purely on demand and unconstrained by any insurance company fee cap.  

In truth, some do opt-out of insurance panels, partially or entirely. In these arrangements, the client pays directly for services without making a claim to an insurance company. This is usually called “cash-pay” or “fee for service.” These practitioners do operate in a real market-based fee system.

Why don’t all practitioners choose to work in the market-driven segment of the mental health system?

With the potential for increased fees for sessions, why do not more clinicians choose to opt out of the insurance-based system? In short, to work for cash only means giving up most insurance payments and, more importantly, the enrollees of insurance companies, each a potential client. Doing so has several challenges:

  1. Only those with considerable disposable income can afford treatment outside the insurance system. 
  2. Most people with insurance want to use it, even those with more money who could pay out of pocket. 
  3. Those without insurance can rarely afford to pay out of pocket. Paying out of pocket is too expensive for most.
  4. To justify the added cost to the patient, the demand for your services must be high and stay high.
  5. The higher the price for treatment, the more price will affect the length of treatment. Higher costs reduce utilization/retention. (For more on Retention, see: Client retention Part III: How to retain clients.)

Clearly, this option works best for experienced clinicians practicing in affluent areas.

It is these downsides that drive many to choose to join insurance networks. They choose to join insurance company networks (insurance panels) and gained access to a large pool of enrollees. They do so with good intentions, to increase the availability of services for the masses who might need care but could not afford it with a purely market-driven approach. 

But are there other ways to increase the hourly rate for outpatient psychotherapy?

Ways to increase a session fee 

When clients seek treatment, they purchase a unit of our time. And we have only so many hours to give. So to increase pay, we have to increase the fee for that unit of time. Here are a few ways to do that. 

1. The medical system went with CPTs

The medical community largely converted from using units of time to using Current Procedural Terminology (CPT) codes, i.e., essentially billing per procedure and not time. The medical community has found ways to increase hourly rates by utilizing multiple or more expensive CPT codes. 

But in mental health, we use only a tiny number of CPT codes, and most of the ones we use are time-based. Therefore while the time factor involved in a medical procedure is not readily apparent, the time for our CPTs is. We have not succeeded in developing procedures unrelated to the time spent. Even the pricing for psych testing is determined by the time it takes to administer, score, and write up results.

2. Convince insurance companies to pay more per session

We can convince the insurance companies that our time is worth more, i.e., increasing the amounts paid for the CPT codes we use. But there is a drawback. 

Since 1890, the Sherman Anti-Trust Act has prohibited price fixing efforts. That means that providers cannot simply join together to influence prices for their services. Furthermore, if insurance companies have enough providers to service their enrollees, why should they pay more? Clearly, insurance companies remain in the driver’s seat. Large organizations may achieve a large enough scale to negotiate with insurance companies, but most providers simply do not have the leverage to move the per session reimbursement rate.

3. Cut expenses elsewhere

One way to keep more money in our pockets is to save money elsewhere. Increasingly popular is to practice out of our homes. Of course, this is what many have been doing during the pandemic. Some will continue to do so. But there are downsides here too. 

  1. It is lonely to practice without colleagues down the hall.
  2. One has to master all the administrative tasks without the support of an office staff
  3. One’s home needs a private space for the work
  4. For those who require face-to-face therapy, the home office needs to meet additional privacy requirements

So who do we blame for this situation?

The truth is that every clinician makes choices that have consequences. On the one hand, one may choose to join the insurance system. Doing so means that one gets access to the insurance company’s enrollees, but unfortunately, one also gets a fee cap and more administrative burden for the practice. In addition, that choice means we have opted out of a purely market-driven approach with possibly higher fees per session.

On the other hand, opting out of the insurance-driven system puts one in the market-driven system with potential financial rewards. The downside here is a less diverse clientele, and the instability that may come should demand for mental health services diminish. Additionally, the marketing burden is far more significant with this option. 

Everyone makes choices, but sometimes we make them without an awareness of the consequences. 

Summarizing why clinicians are not seeing more money 

Everyone knows about the laws of supply and demand. And certainly, everyone knows about the increased demand for mental health services. But most providers have not considered the deal we made with the insurance system. They just know that they are working really hard, and it seems like there should be more financial rewards for their work. 

Furthermore, the message one hears everywhere is that the demand for providers is super high. That is true. But what is rarely addressed is that the mental health system does not respond to higher demand by paying more for the services that providers offer in mental health. Instead, the system tries to extract the most productivity from existing resources without increasing payment for that work.

Does understanding these structural limitations matter?

Maybe understanding our situation does not help with the sense that we should be paid more. But then, the devil’s advocate in me reminds me that what marketplaces reward is a weird process anyway. (Here is a study that suggests that the poorest 1% and richest 1% of full-time workers put in almost the same number of hours per week at work. Crazy!)

For example, are our sports heroes and rock stars worth what they get paid? How about our CEOs, or for that matter, why do managers get paid more than the in-the-trench worker? Who is to say what one’s work is worth? In my view, markets distort what they reward as often as they “adequately pay what one is worth.” The marketplace is not fair. It just is.

And in our case, people have never been attracted to mental health careers for the high salaries. We fit in the marketplace where we do. We have options we can choose from, but we cannot remake the markets to give us more money. No one has that power.

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