What is the best set-up for starting to use health coaches as independent contractors for my Functional Medicine practice, percent split, legal consideration?

Okay, so that’s a lot of questions but I love to dive into that because they’re great questions and I think they’ll be of interest to a lot of people.

Let’s start from the top. There are three possible arrangements, employment or a legal kind of business relationship possibilities, when you’re working with a health coach as a practitioner. Number one is you can hire them as a W-2 full-time employee. That’s where you would pay a full-time salary and provide insurance and benefits and everything else. That’s doesn’t sound like that’s in the cards right now, although it might happen later.

The second is that you hire them as independent contractors, so in that scenario your patient pays you for the health coach’s services but then the health coach will bill you for the time that they spend with the clients. I think what works best in that situation is just establishing an hourly rate that you’re going to pay the health coach for each hour of time that they spend with one of your patients, and then the health coach just tracks the number of hours that they’re spending and then will just bill you for that for that time. In terms of the rate, the hourly rate, I think that depends a little bit on the health coach’s qualifications and background and whether they’re also functioning as a dietician or nutritionist. So, for example, someone who has an RD or a CNS who is also functioning as a health coach and they’re functioning both as a dietician and a nutritionist and as a health coach would probably command a higher hourly rate. I’m just throwing numbers out because it’s really going to depend on location, geography, etc., but maybe somebody like that might command a rate of $50 an hour or $60 dollars an hour and maybe somebody who is a health coach and doesn’t have the dietetics background, is not working as a nutritionist, might be somewhere more in the range of $30 an hour or $40 an hour or something like that. It depends. It really depends on so many different factors. Here in the Bay Area in California, rates will be higher. Other places, maybe in the Midwest where cost of living is living and demand for these kinds of services might be lower. So somewhere in that range is probably a good starting place.

Legal considerations, you’re going to want to have a—I’m forgetting the name of this particular agreement. I will get back to you with the name of it. There’s basically an agreement between your two businesses because if they’re an independent contractor, that means they’re going to need to have their own business, so then your business creates an agreement with their business. Part of that agreement, actually, and this is why it has a specific name, is related to HIPAA considerations, so they’re essentially agreeing that they’re not going to share your patient’s data in a way that’s not secure, that they’ll use HIPAA-protected methods for communication and etc., etc. There’s a certain name for that agreement, and we’ll track that down for you and get back to you.

When does a client patient become their patient and we no longer pay them as an independent contractor? Well, that all depends on how you set it up. I mean, my recommendation would be never. As long as they’re working with your clinic as an independent contractor, the patient is your patient and they’re just helping support your patient in whatever protocols that you recommend to their patient, but it’s still your patient. There’s no explicit agreement or understanding that at some point your patient is going to become their client exclusively. I wouldn’t recommend that. I think that can create some potential bad feelings, but whatever the case, you just make sure that it’s clearly agreed upon and outlined in a contract between you two.

What you don’t want, of course, and I don’t think any health coach with integrity would do this, but you don’t want a situation where the health coach is coaching your patients and saying, “Hey, I can help you just fine and you’ll spend less money.” I mean, that’s obvious, but that’s the kind of thing that you want to avoid. At the same time, for us, we have a health coach on staff, and if someone finds that they get all the value they need out of working with a health coach, we’re happy for them to continue to do that. But they’re still doing it under the auspices of the clinic, not on an individual basis with the health coach outside of the clinic.

Let’s see, ​I’d like to transition into having each new patient have 30 minutes with the health coach and with each new patient appointment. If my fee is $250 for a new patient I see, what should the independent contractor health coach receive?

I think I already answered that before in terms of just setting an hourly rate, and so you would just pay your independent contractor or health coach half of that for that 30-minute appointment, but I would strongly consider increasing your new patient rate if you’re going to add a service to it, and then you should probably increase the fee for that service by at least whatever you’re going to pay that health coach. I mean, again, it depends on how you’re looking at it. If you’re doing that as kind of a marketing tool as a way of increasing the perceived value of your new patient visit and you’re willing to absorb that additional cost as a way of maybe getting more patients in the door, then that’s fine and that’s a legitimate choice. But just understand that you’re making that choice.

If you know if you want to be compensated for that, then you would need to at least add your hard costs, but ideally in this situation, what you would do is you would add not only your hard costs but also at least you probably double that. If you’re paying the health coach, let’s say, $40 an hour, then you would increase the price by $80 an hour, so that you’re earning a little bit of extra income on that service and that’s how you’re able to grow and not work more and more and more and more because there are costs that you will bear in offering that service that are not only related to how much you have to pay that independent contractor health coach. There’s going to be administrative costs related to that to the time that your patient spends with the health coach onboarding, just more traffic coming in and out of practice, so there’s a lot of stuff that’s happening behind the scenes that you have to include in your fee structure as well. Legal agreements, Lyndsey tracked down the name of what I was thinking about, yes that’s exactly right—it’s the business associate agreement, BAA. You can look, do some Googling for a BAA, and there’s a lot of good material about it where you can learn what it is and why it’s important. We may have something too around that. I need to look and see. If we do have something, we’ll get it to you, for sure.

Let’s see, yes. I think that’s it. I think we answered all the questions. I think it’s fantastic that you’re doing this. I strongly recommend working with health coaches. We’re actually kind of in the midst of overhauling some of our clinic model to focus more on health coaching. I think it’s really an interesting way to expand your services, and it’s, as I’ve argued in my book and elsewhere, most healthcare is self-care, so patients making the diet, lifestyle, and behavior changes, it’s so crucial to their success and sometimes can make us a bigger impact than even some of the Functional Medicine diagnostics and treatment. Change is hard. It’s hard to stick with. We all know that. If you look at the statistics, it’s pretty clear that that’s one of the biggest stumbling blocks that we face, so having health coaches on staff that can really help people to make these changes successfully over the long term is really critical.

Okay. Question from Tessa,​ ​“Do your independent contractors or health coaches also pay rent or just show up on schedule?”

No, they don’t pay rent. They just show up when scheduled, but in our case most of the health coaching occurs virtually, so there wouldn’t really be any rent anyways. Generally, in an independent contractor situation in a clinic, they wouldn’t be paying rent. They would just be contracting at a certain rate, and then they’re responsible for providing their own … No computer. If they’re doing virtual sessions, they would be expected to have their own laptop or computer and microphone. They’re basically handling all the stuff that’s part of them running their own business. But I have rarely heard of anyone like a health coach or any kind of independent contractor being asked to pay rent in a medical healthcare clinic situation.