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Nonprofit Organizations as a Vehicle for Enhancing Psychological Practice |
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Professional Practice |
Harris Friedman, PhD |
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Many funding sources restrict contracts and grants to nonprofit organizations. In addition, certain types of clients may only be treated by nonprofit agencies eligible for special reimbursement considerations as compared to what is available to psychological practitioners in private, for-profit, settings. Consequently, psychologists who typically operate as sole proprietors or under a professional corporation, partnership, or some similar for-profit form, are excluded from many valuable opportunities. Alternatively, psychologists wanting to partake of these opportunities often write contracts and grants through extant nonprofits in which they have little influence—and typically pay a high price for doing so (monetarily and otherwise). Although it may seem daunting to create a nonprofit to further professional psychological purposes, it actually is quite reasonable to consider this as an option to address these problems. In this article, I share some of my experiences in successfully using nonprofits in my former psychological practice. Note that this paper is not meant to give legal or tax advice, and a qualified professional in an appropriate field should always be consulted in these matters for any specific concerns. COMMON MISCONCEPTIONS ABOUT NONPROFITS First, there is a novel way of thinking about a nonprofit: It is the only form of business that can legally make a profit without penalty (i.e., paying taxes). Conversely, for-profit endeavors are punished (i.e., taxed) for making a profit. Thus, nonprofits do not eliminate the potential for gain, rather they enhance it. Second, it is commonly believed that nonprofits cannot yield substantial benefits to those who create or run them. This is not true, as evidenced by the multimillion dollar salaries commanded by leaders of major nonprofits such as the Red Cross. However there are some restrictions that have to be carefully observed to avoid what is known as inurement, a term that applies to gaining undue profit from an insider position with a nonprofit. Specifically, any salary or consulting fee taken by a psychologist in a nonprofit over which the psychologist has some control must meet standards of reasonableness, that is not to exceed the usual and customary salaries or fees for comparable work in the for-profit sector. Thus a psychologist who serves on the board of directors while working for or consulting with a nonprofit can legitimately command the same fee as would be expected in for-profit work. Third, it is also commonly believed that it is difficult to create a nonprofit and to comply with the reporting requirements once created. However, it is no more complex to incorporate an organization as a nonprofit than it is for a for-profit. Usually, it just requires filing under a different category with the state in which incorporation is sought. However, an organization that is set up as a nonprofit is not fully legitimated in most circumstances unless it achieves Internal Revenue Service recognition, for example 501(c)(3) or similar status. This requires filling out somewhat complex forms but, with suitable professional help from a lawyer or accountant, it can be done quite reasonably. After having created several nonprofit organizations, I now have the knowledge to do this on my own and, in fact, have volunteered to help several charitable organizations achieve this desired status. In regard to subsequent reporting issues, in many ways the requirements here are simpler than for for-profits and, in some instances, there may be no reporting requirements at all. Last, many consider nonprofits to inherently be clumsy, stultifying bureaucracies. Although such nonprofits are prevalent, if psychologists form their own nonprofit organizational structure, they can be anything but inefficient bureaucracies. In fact, some of the most innovative and progressive contemporary organizations are nonprofits. Thus there is great freedom and creativity potentially available in how a nonprofit is formed and utilized. WHAT ARE THE BENEFITS OF A NONPROFIT? First, psychologists often provide services that are in the public good, including pro bono services to those who are without resources. In fact, many psychologists are de facto running nonprofit organizations—but have not structured them in ways that leverage the benefits that a nonprofit vehicle could provide. Consequently, if a psychologist is very community minded and views practice primarily as an opportunity to benefit the public, while simultaneously earning a “right livelihood,” then a nonprofit business structure may make sense. Second, working through a nonprofit can open doors to many opportunities that otherwise would simply not be available. For example, I have been awarded many government psychological and related contracts in which either nonprofits were the only organizational form eligible for these grants or, in some instances, the contracts were awarded noncompetitively to the nonprofit whereas a for-profit would have had to bid on such contracts. For psychologists interested in research, as well as professional practice, nonprofit status can also allow for grant opportunities to combine both professional service and scientific exploration—fulfilling the reason why many psychologists entered the field initially. Third, working through a nonprofit can provide a certain sense of pride or status, and connectedness, for private practitioners. There are many psychologists who feel dispirited in the current economic climate of managed care which has led to severe cost-cutting measures (resulting in more and more competition fighting over less and less rewards). Those who choose a nonprofit venue for their activities can reframe their professional involvements as explicitly being in the public interest and have a renewed sense of professional pride and status. This could help counter the trend in which many psychologists have left the field as their earning power diminished which resulted in a sense of relative deprivation--making it difficult for them to continue to engage in private practice in a way that seemed grossly underpaid. Likewise, the isolation of private practice often is damaging to psychologists, whereas working through a nonprofit often involves ample socialization opportunities outside of the usually restricted office setting. Fourth, a nonprofit can provide a significant shield against malpractice liability and payback risks. When working with high-risk clients (e.g., sex offenders) or in high volume situations (e.g., supervising many psychological assistants whose record keeping may be sub par), psychologists can be personally liable for potentially dire consequences. Despite the common belief that a corporation can provide a buffer in these cases, or that malpractice insurance covers all such risks, the corporate shield can be readily pierced in many situations (e.g., by Medicare payback requests) and malpractice insurers can pay their part and walk away from big-ticket claims, leaving practitioners legally vulnerable. The nonprofit organization, however, presumes a degree of sovereign immunity, because of its semipublic status, against such potential catastrophes. In my own private practice, consequently, there were many populations I would never have served, especially in a large volume, without a nonprofit’s protection. Last, working through a nonprofit provides opportunities for taking a role as a professional leader. For example, I recently described how I built and ran case management programs (Friedman, 2002). In accomplishing these through a nonprofit vehicle, I was able to meet many of my personal and professional needs, including though income enhancement (e.g., in achieving economy of scale in supervising a significant number of case managers as psychological extenders) and the non-monetary rewards of working as a leader and mentor. WHAT ARE THE DOWNSIDES OF A NONPROFIT? Despite the numerous advantages of this form of psychological practice, there are definite downsides. No matter how much of one’s soul is put into a nonprofit, it is not personal property. Consequently, a nonprofit cannot be sold for a personal profit, or left to an heir, as you would a form that can be owned. In addition, you cannot fully control a nonprofit. Most states have regulations about number of people who are required to serve of the board of directors of nonprofits, and the board controls the nonprofit. I have seen, and personally experienced, boards too often turning against those who founded and ran nonprofits. But politics enters all human activities and, except for solo psychological practitioners, dealing with such issues pervades both nonprofit and most forms of for-profit psychological practice. CONCLUSION Conducting psychological practice through a nonprofit has both distinct advantages and disadvantages as compared to other organizational forms. Especially for those who are entrepreneurial, often nonprofits are overlooked, being seen as inopportune means of achieving goals. In my own practice of clinical psychology over many years, I was able to maintain a balance of stimulating and rewarding activities through using a combination of both for-profit and nonprofit business arrangements. I recommend that psychologists consider the potential of using the nonprofit organization as a vehicle to enhance private practice and, for those who dare think and maneuver outside of the box on such issues, many benefits can accrue. REFERENCE Friedman, H. (2002). Case management as an extension of psychological practice. Independent Practitioner, 22, 191-193. |
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