You’re trained to identify clinical risks… but what about your practice risk?

Many practice owners assume their business is sound from a legal and commercial perspective. Agreements are in place, the structure has remained unchanged for years, and financial performance appears stable, and everything’s fine, right? What you might find, when examined more closely, a different picture can emerge.

In most cases, the issue is not a single critical failure. Instead, it is the accumulation of small gaps and inefficiencies that, over time, diminish the overall value of the practice.

These gaps are not limited to compliance risk. They also arise through loss of revenue, operational inefficiencies, and structures that no longer reflect how the practice functions in reality. In the current regulatory environment, these issues can have a direct and measurable impact on both profitability and practice value.

The truth: compliance issues are commercial issues

Historically, many practice owners treated legal compliance as something separate from profitability. However, that approach is no longer sustainable.

Changes in payroll tax enforcement, evolving interpretations of contractor relationships, and increased regulatory scrutiny mean that the way a practice is structured now directly influences its value.

This shift is particularly evident across the medical and healthcare sector. Practices expanding into multi-disciplinary allied health, dentistry, psychology, or multi-site models often assume they are growing.

However, in practice, this often results in:

increasing exposure to the risk of payroll tax liability
operating under agreements that don’t reflect day-to-day reality
allowing revenue to flow through structures that are not commercially efficient

In some cases, this results in an unintended paradox: a growing practice that is simultaneously losing value.

Where value is commonly lost

Loss of value rarely arises from a single issue. More often, it reflects a combination of legal, financial, and operational misalignment, frequently founded in day-to-day practices.

1. Agreements don’t reflect operational reality

This is one of the most common issues observed in practice.

While practitioners may be engaged as independent practitioners on paper, the practical reality of the relationship often differs. Where agreements fail to accurately capture how patients are billed, how fees are collected and distributed, and who exercises control over service delivery, the consequences extend beyond a technical legal issue.

Misalignment between documentation and reality can:

create uncertainty in the revenue model;
increase exposure to payroll tax and other liabilities; and
undermine the integrity of the overall structure.

Importantly, in assessing risk, the actual operation of the arrangement will carry more weight than the wording of the agreement.

2. Payroll tax risk is sitting in the background

For many practices, payroll tax is a known issue, but one that hasn’t been properly considered.

Since the decision in Thomas and Naaz, revenue authorities have intensified scrutiny of independent practitioner arrangements. Although certain exemptions exist, particularly for GPs in specific circumstances, the position remains complex and varies across jurisdictions.

Key considerations include:

exemptions are often limited (e.g. bulk billing, GP-only)
allied health and specialist arrangements are frequently not covered
each state applies the rules differently

The assessment is based on the totality of the relationship, not just the contract

This creates a situation where many practices are operating in a grey area and revenue authorities can assess liabilities retrospectively, often several years after the relevant arrangements were in place, resulting in significant and unexpected exposure.

3. Revenue flows are not optimised

Even where there is no immediate compliance issue, we often see practices losing value through the way revenue is structured.

Common indicators include:

unclear service fee structures
inconsistent billing processes
outdated financial models that haven’t evolved with the practice

These issues are not always recognised as a “legal problem.” Instead, they are identified through reduced profitability, cash flow pressure and challenges in scaling operations.

Where revenue growth is not matched by improved margins, structural inefficiency is often an underlying cause.

4. Growth without structural alignment

As your practice evolves through new services, new practitioners and new locations, the legal and operational structure needs to evolve accordingly, and stabilise.

Where this does not occur, practices are left relying on agreements, policies, and systems designed for a smaller or less complex business.

This is one of the most common patterns we see: a successful practice built on outdated foundations. Over time, this creates inefficiency and increased risk, often requiring significant action at a later stage.

Why this matters in practice

The impact of these issues is not always immediate, which can create a false sense of security.

In practice, the consequences tend to emerge in three key areas:

Reduced profitability: Small inefficiencies in structure and revenue flow compound over time, resulting in meaningful financial loss.
Increased risk exposure: Misaligned arrangements heighten the likelihood of payroll tax liabilities, practitioner disputes, and regulatory scrutiny.
Lower enterprise value: When a practice is assessed for sale, investment, or restructuring, uncertainty in agreements, compliance position, and revenue control will typically result in a lower valuation.

The shift: from assumption to clarity

Practices performing well in the current environment are not necessarily the biggest.

They are the ones that have clarity.

They know:

how their practitioner arrangements work
where their risks sit
how their revenue flows
what needs to be tightened or updated

Rather than relying on historical assumptions, these practices are making informed, deliberate decisions about their structure.

What to do next

Addressing these issues does not require you to try and fix everything at once. The first step is to fain a clear and accurate understanding of how your practice currently operates.

That means taking time to ask targeted questions:

Do our agreements reflect our day-to-day operations?
Are we exposed to payroll tax risk that we have not considered or budgeted for?
Is our revenue flowing in the most effective way?
Have we outgrown our current structure?

If you do not have clear answers to these questions, that is your starting point.

A practical next step: Independent Practitioner Audit

For practices engaging independent practitioners, a structured review is one of the most effective ways to identify areas of risk and value leakage.

This process typically involves:

Reviewing practitioner agreements and supporting documentation
Mapping how the practice operates in reality
Identifying legal and commercial risks
Providing clear, practical recommendations for improvement
Guiding decision-making through tailored advice

This is not solely a compliance exercise. It is a strategic process aimed at strengthening the practice, improving profitability, and positioning the business for sustainable growth.

Final thought

Most practices are not intentionally getting this wrong.

In many cases, they are operating on structures that were appropriate at an earlier stage but no longer reflect the current reality of the business.

The associated risks are often not immediately visible. However, the impact on profitability, risk exposure, and value is significant.

If you are unsure whether your practice is operating in a way that protects its value, it is time to take a closer look.

Practices that perform strongly in the current environment are not simply those that grow. They are those that are structured to retain and protect the value they create.

Our Practice Independent Practitioner Audit provides a clear view of your legal and commercial position, and practical steps to strengthen your arrangements. You can get in touch with our team here to discuss whether this is the right next step for your practice.

Related Articles:

https://youlegal.com.au/you-legal-blogs/payroll-tax-guide-medical-practices-2025

https://youlegal.com.au/you-legal-blogs/review-independent-doctor-agreements

https://youlegal.com.au/you-legal-blogs/doctor-agreement-warning-signs

Where your practice may be losing value (and what to do about it)