July 1 every year on the medical calendar is often looked on as a time of both wonder and extreme anxiety by consultants and junior doctors alike. It is a day, internationally, when new interns and residents of a hospital join teams. It is a trial of figurative fire during which the teething pains of medical school are the most apparent: Interns and junior residents will make the most errors on this day, whether clerical or clinical. These errors often come at the expense of management to the patient and, while most of them are not life-threatening, they also cause stress to everyone involved on the team.

It is a day which is part of an established norm. This norm is organisational hierarchy. The ladder is downward and runs from consultant, senior resident, junior resident, and then intern. After a doctor finishes a residency or opts to stop training after the minimum two-year mandate in the hospital, he/she may seek to enter private practice.

Now that the backdrop is set, let us discuss the nature of the doctor on his own seeking to build his or her name and reputation in private practice. A lot of doctors have not realised that when they go out into private practice they become independent contractors, which, simply put, is a person, business or corporation that provides goods or services under a written contract or a verbal agreement. Many independent contractors rent space in business developments; for example attorneys, architects, and engineers, and then provide a service to clients.

A doctor coming out of school, generally speaking, has a scientific mind and is not monetarily risk averse. Simply put, from the very outset, we are used to organisational hierarchy and the notion of working for someone or an organisation. Fundamentally, while nothing is wrong with working for someone, the difference between doctors and a lot of professionals is that whereas, for example, attorneys join law firms and bill clients for hours allocated to a legal case, most doctors enter into arrangements with long-standing or established practices and also bill patients; however, the billing system is different.

Businessmen realised a long time ago that due to doctors’ risk aversion, in order to get them to work at the practices they built, they would enter into a split arrangement (60/40). This split was in favour of the doctor. Some places also offer a 50/50 split, which is strangely popular as well. On the surface of it, 60/40 splits seem amicable. Overheads are covered by the business and the doctor does not pay anything to the business if they see no patients. It seems like a win-win situation and it is deceptively so at first. The problem with this scenario, though, is whether or not the doctor has realised it, in effect they have become an ’employee’ of the organisation. The genius of this scenario is that the more the doctor earns the more the organization also earns. Eventually, there is a plateau effect in which mutually beneficial skews towards being beneficial for the organisation, and arguably parasitic. This is what I like to refer to as the “golden handcuffs” scenario.

As an independent contractor in this situation you have essentially traded growth for stability, and you can never become a lead physician — only a servicing one. Businessmen see this as a fair trade, but in business nothing really is fair. At best, this is a quid pro quo scenario.

In aligning yourself with the organisation, the advantage a doctor gets is building his own clientele and popularity in exchange for giving the business more and more money. When it becomes unacceptable on a personal level is when that 40 per cent contribution becomes more than what it would cost to rent a space and start your own practice. This becomes most apparent at tax time. Your contribution to the business can never be ascertained as an allowance as you do not know what the business does with it (you receive no dollar value on where the money goes and you will not get a tax refund on any of that money you have contributed to the business).

The rub of this situation is that 60 per cent you take home is still taxable income. This equates to a form of tribute to the business, then taxation to the Government. This is the reason businessmen laugh at doctors in social settings. As far as I know, doctors and some dentists are the only professionals who engage in this form of business. I encourage all potential entrepreneurs to get familiar with an accountant and the terms expenditures and taxable allowances (these include rent and utility bills).

I encourage everyone to read books about business, including Business in the 21st century and Rich Dad, Poor Dad. I also am encouraging young doctors to get familiar with the SO4 income tax form and to look into real estate and feasibility studies for starting their own businesses, either standard offices or other forms of medical entrepreneurship. The other option is to align yourself with a business offering a rent contract when you are ready to take a calculated risk — which is rare to find because of the 60/40 norm. We cannot change organisational hierarchy and business prerogative, but we can change our knowledge about entering into these kinds of agreements long term.

Dr Kevin Kyle Daley is a general practitioner who has served both in the public sector and private practice. Send comments to the Jamaica Observer or drkevinkyledaley@gmail.com.