Barter for Psychotherapy?

From time to time I’ve had folks tell me that bartering within a particular industry is “not allowed.”  Usually the person I’m talking to will vaguely refer to the IRS, the SEC or some other regulatory agency without any specifics.  Not satisfied with this, I’m trying to track down some hard facts and here’s the first area that I’ve nailed down.

Based on my research it appears that bartering for psychotherapy services is NOT in and of itself illegal, however it does raise some serious ethical issues and could quite possibly be against the ethical code for some professional organizations in the industry.  The concern here is that a patient/therapist financial relationship needs to be extremely strait-forward so as not to allow for the possibility of the patient to be taken advantage of due to the therapeutic relationship.

In California (where I am) the primary concern of the Calif. Bd of Behavioral Sciences and the Calif. Assn of Marriage and Family Therapists (CAMFT) is the issue of “dual relationships”.

1.2 DUAL RELATIONSHIPS-DEFINITION: Marriage and family therapists are aware of their influential position with respect to patients, and they avoid exploiting the trust and dependency of such persons.

Marriage and family therapists therefore avoid dual relationships with patients that are reasonably likely to impair professional judgment or lead to exploitation. A dual relationship occurs when a therapist and his/her patient engage in a separate and distinct relationship either simultaneously with the therapeutic relationship, or during a reasonable period of time following the termination of the therapeutic relationship.
Not all dual relationships are unethical, and some dual relationships cannot be avoided. When a concurrent or subsequent dual relationship occurs, marriage and family therapists take appropriate professional precautions to ensure that judgment is not impaired and that no exploitation occurs.
1.2.1 UNETHICAL DUAL RELATIONSHIPS: Other acts that would result in unethical dual relationships include, but are not limited to, borrowing money from a patient, hiring a patient, engaging in a business venture with a patient, or engaging in a close personal relationship with a patient. Such acts with a patient’s spouse, partner or family member may also be considered unethical dual relationships.

The former legal analyst for CAMFT, Richard Leslie,  adds to this in a recent article:

Do not permit the patient to pay for therapy by rendering personal services to you (e.g., fixing your car, landscaping, cleaning your house, editing a book, giving a massage, cutting your hair). Do not permit the patient to barter for therapy with items of subjective value (paintings, sculptures, hackies, collectibles).

Even barter of items with an objective value (cord of wood, bag of horse oats) may present difficulties. While the barter has a fixed value, the trade of it may entail meetings outside of session or meetings at the patient’s or therapist’s residence.

Ultimately it appears that it is up to the individual therapist to determine if they feel that bartering for services constitutes an unethical dual relationship.  I can see both sides of the issue on this one.  From the one point of view, if the specifics of a barter are determined before the therapeutic relationship starts and the terms of the arrangement are as strait-forward as a cash relationship (as they should be if the barter was conducted through an exchange) then I really don’t see a problem here.  That being said, my friend who is a therapist and helped me with this research did not feel that barter has a place in his business.  He feels that patient/therapist relationships must be so squeaky clean that all possible grey areas are to be avoided.

Added 9/27/10
Here’s an article on the topic that appears to be very well thought-out:

Why do barter exchanges have such bad security?

Does this open vault remind you of your barter exchange account?  Is it just me or does it seem totally insane the way barter exchanges handle (or should I say DON’T handle) security?  As of right now I belong to two exchanges.  Both have the same general idea about security.  Anyone with an account that has my ID number can charge my account without my permission through the exchange’s website.  OK.  That’s wierd enough, but the real punch line is that I need the other party’s permission (or my broker’s blessing) to remove a charge from my account.  I can’t do that through the exchange website on my own without approval.  That totally blows my mind.   This is like saying that anyone can write a check out of my bank account on their signature (not mine) and I have to beg “pretty please” if someone charges me incorrectly.

Shouldn’t it work exactly the opposite of that?  Shouldn’t someone have to request my permission to charge my account (including my broker) and shouldn’t I be able to remove an erronious charge without outside approval?  When I’ve asked my brokers about this I’ve gotten two responses:

  1. This is a left over vestige from when all barter transactions were processed manually.  That may very well be true, but it in no way satisfies my desire for security.
  2. This is the way we always do and it is extremely rare for there to be any problems because of it.  Well, I have to admit that I’ve never had a problem either so maybe I’m worried about nothing.  That being said the whole premise of vendor being able to charge my account without my specific permission doesn’t sit well with me.

I should probably point out that as strange as this system might sound to someone outside the “barter community” this is a TOTALLY NORMAL and accepted practice for barter exchanges.  It’s not just my two barter exchanges that do this.  As far as I can tell this lack of security is a common thread across the majority of barter exchanges.

Know what barter really "costs."

Part of bartering effectively is knowing the value of what you are trading away and what you are trading for.  With that in mind it has come to my attention that it’s very likely that your barter profit margin is different than your cash profit margin.  Some barter brokers like to try to make it sound like barter dollars are free but for most traders this simply is not true.  Here’s a common calculation for cash profit margin:

(Cash Sales – Overhead – Cost of Goods Sold – Labor) / Sales = cash profit margin

Because barter is on top of my normal cash sales I look at overhead as a “sunk” expense that doesn’t contribute to my barter profit margin.  It’s all paid for by my cash sales and doesn’t need to be included in my barter costs.  If your labor is salaried or conducted personally in available time then the same could be true for labor.  That being said, my staff is hired hourly on a per project basis so personally I have to keep labor in the calculation.  Another difference between cash and barter profit margin is your barter commission.

“Cost of goods sold”  (COGS) for physical items is probably the trickiest expense to deal with.  If the product sold comes out of your normal product inventory then it clearly needs to be a barter expense.  The complication comes when you are bartering away non-standard  inventory (over-stock/breakage/liquidation/etc.) that is not part of your normal product inventory.  In that case you need to either include it in your cash overhead or as a barter expense, depending on which way you feel provides you with more meaningful accounting reports.  Although I personally lean toward counting this as a barter expense, if you are including all your overhead as a sunk cash expense as mentioned above, it’s probably more consistent to look at it as a sunk cash expense too.

So… with all that in mind here is a revised profit margin calculation adjusted for barter:

(Barter Sales – Cost of Goods Sold as appropriate – Labor that is specific to the transaction – barter commission) / Sales = barter profit margin

I suppose I shouldn’t wrap up this post without pointing out that I don’t have any formal accounting training.  Please comment back with any problems you see with my take on this subject.