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PRICING: The Conundrum — Figuring Out the Best Strategy For Your Practice

Catherine Sykes, DPC Journal Publisher and Managing Director

By Michael Tetreault, Editor-In-Chief

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MAY 5, 2014 – With almost half (approx.. 41%)[1] of all membership medicine and cash-only physician practices reporting a decrease in annual salary in 2013, how should you set fees or prices for your medical service(s) in your practice? Often the most terrifying question facing physicians entering and surviving in this marketplace is, “What do I charge my patients?”  Such a simple question, but for the new “Doc-Preneur” it’s often complicated and intimidating challenge.

As a medical service provider, pricing is often particularly subjective. You’re not selling a widget that can be easily bench-marked. You’re selling your training, expertise and time — a market value that isn’t necessarily easily defined. It takes quite a bit of time to figure out this “pricing conundrum” – but after countless discussions with physicians, hours of examination and a little investigation, here are five key things to consider.

Instead of Upselling: Offer Choices

Many membership medicine and direct-pay doctors are incorporating a vast number of added-value services for patients to aid in patient satisfaction and retention. Services include: Heart burn and gastrointestinal disorders; B12 injections; Vitamin deficiencies; Hormone balancing therapies; Mole checks; Testosterone injections; Medically supervised fat loss programs and a diverse collection of other wellness-focused and anti-aging solutions.

“I give a lot of B12 injections and testosterone injections for those who need it,” says Dr. Sarah Mildred Gamble, D.O. of Greenwich, CT who runs a thriving concierge medicine practice. “I also do a lot of in office procedures like mole checks and removal, trigger point injections … and then there is my Botox/fillers appointments too.”

At The Direct Primary Care Journal, we recently learned that four out of every ten membership medicine and direct-pay offices are working with and negotiating discounts with local labs in their area for services such as: PAP Smears; X-Rays; MRIs; Colonoscopy; Genetic/DNA Tests; and more.

Dr. Gamble, D.O. has consistently been recognized for her outstanding dedication to her patients, her commitment to continuity of care and her contributions to medical education.

“I’ve been working on adding new services as well,” adds Dr. Lamberts. “One of the first things I did when I opened the office was to negotiate a very inexpensive fee schedule from a lab who would bill me for the tests.  Most docs mark up the tests and make a profit off of it, but I do very little mark-up of the tests, instead offering things like a CBC for $4.50 and a TSH for $8.00. I am now working on doing the same thing with an x-ray facility, giving them the opportunity to get guaranteed cash up-front [reducing their overhead] while avoiding the many traps of compliance with Medicare billing [which forbids providers from giving discounts to other patients that they don’t give to Medicare patients].”

Some retainer-based and direct-pay medical practices are built around visible, low priced services aimed to bring people up to their service window and generate higher unit sales. Others offer more personal services and sprinkle in more relational ingredients into their business plan aimed at meeting a need at a higher price and communicating a message routinely to patients that keeps them coming back for more assistance. A problem with frequent low pricing is that your medical practice may wind up losing patients who assume your stable of services are not keeping pace with their needs.

Consider Raising Your Fee To Be Taken More Seriously.

Interviews with various physicians and industry sources indicate that the average patient or consumer of concierge medicine and direct primary care (DPC) services can withstand a small annual premium increase of about $25 to $160 per year. However, the problem with raising prices among concierge medicine and cash-only/direct-pay patients, especially in small medical offices is that it causes patients to reassess how much they value the relationship and how much then use the care throughout the year. Patients have a lot of other factors to consider such as their monthly or quarterly familial commitments, their health insurance premiums, recent experiences with the doctors’ staff, traffic and travel interruptions to your office and how often they truly utilize your services on an monthly or yearly basis.

marketing md book tip 10“I don’t foresee any rate increases for 2015,” says Dr. Rob Nelson of Cumming, GA to one of his patients. “I don’t expect an increase in my costs for Lab or X-ray, so that component probably won’t be an issue. Unless my medical supply costs go up significantly, I don’t foresee any price increases for 2015.  For your peace of mind, I will guarantee that you can renew with no more than 5% increase.”

AVERAGE MONTHLY COST $$$ OF A CONCIERGE DOCTOR IN U.S.* (Source* The Collective, 2013)

  • Less than $50/mo. – Eleven percent (11%) of surveyed concierge medical practices cost a patient less than $50 per month.
  • $51-$100/mo. – Nearly fourteen percent (14%) of surveyed concierge medical practices cost a patient between $51-$100 per month.
  • $101-$135/mo. – Nearly thirty-one percent (31%) of surveyed concierge medical practices cost a patient between $101-$135 per month.
  • $135-$180/mo. – Less than nine percent (<9%) of surveyed concierge medical practices cost a patient between $135-$180 per month.
  • $181-$225/mo. – Less than one percent (<1%) of surveyed concierge medical practices cost a patient between $181-$225 per month.
  • $226-$00/mo. – Nearly thirty-five percent (35%) of surveyed concierge medical practices cost a patient more than $225 per month.

Price and transparency is the most powerful marketing message you have, beyond the doctor of course. What’s most important isn’t the high or low of it, but how it matches your strategy. When Concierge Medicine Today asked current patients of similar concierge-style medical practice, ‘what is the most common objection you have that influences your decision when choosing a private, concierge doctor is …’ 34% said price is biggest concern/objection they have, followed closely by insurance compatibility at 29%. (Source: The Concierge Medicine Research Collective 2010-2014)

There’s No National Benchmark, But There Is An “Acceptable” Range.

As you may already know, the national average annual fee for membership medicine and cash-only services is between $1,200-$1,700 per patient per year. Large networks of concierge medicine and direct primary care doctors have claimed a significant portion of the concierge doctor market share and thus help to keep prices from inflating too high in major metropolitan markets. We have also found that some independent concierge and DPC doctors, those not affiliated with the larger franchise consulting companies, who are not part of a large group may charge higher rates, $2,500 and up.

According to industry physicians and business leaders currently operating in this market space, this price difference is primarily due to the fact that franchise concierge medicine practices are better supported during the initial launch period and do a better job of educating patients about what services will be included for the fee. Therefore, more patients sign-up by start-up. Meanwhile, independent physicians setting out to transition their private medical practice into a viable business model are at times, struggling to acquire the necessary amount of patients to support operational activities, thus, many are charging more per month for their services because they have less patients and less start-up support to help them with strategic planning, messaging and growth.

Know Your Competition.

The research, discussions and analysis of annual fees we’ve compiled over the years related to this pricing conundrum tell us that fees are coming down due to direct primary care and direct-pay physician competition in certain metropolitan markets. But direct-pay physicians are not your only competition. As the demographic of patient for both concierge and direct pay is getting younger and younger, retail medical clinics, Urgent Care’s and the ACA (Affordable Care Act) are increasingly more competitive in this niche space. Additionally, as more physicians move into straight cash-only, direct-pay practices with no insurance contracts, they are trying to keep their fees under $100 to meet financial and operational annual goals. In doing so, they are seeing more patients. The problem DPC physicians with cash-only, membership fees priced under $100 per month is that physicians lack enough patients to sustain a viable practice. We hear of a new DPC practice going under about once a week. DPC practices with have no insurance component have to see more patients and lose the true connection and meaning behind why they moved into this model in the first place because they’re prices are either too low and they’re seeing too many patients OR they’re not in a market that can support it.

By Rob Lamberts, MD | Physician | DPC Journal/CMT Contributor -- http://more-distractible.org/

By Rob Lamberts, MD | Physician | DPC Journal/CMT Contributor — http://more-distractible.org/

“It’s the one and done patients that take the most time and cost my practice the most,” says direct primary care doctor Rob Lamberts, MD who operates a unique medical home in Augusta, GA.

This is what we’re hearing on “Mainstreet” from the cash-only and membership medicine physicians and staff we talk to each day. We coach and mentor physicians based on our expertise and recommend that if you raise your rates, do it slowly. Patients will vote with their feet or their wallet. You’ll know very quickly the answer to the “Pricing Conundrum.”

“The first thing to decide is whether you want to continue billing insurance,” ,” says Mike Permenter, Executive Vice President and Chief Development Officer at MedFirst Partners LLC. “If so, then there are specific legal issues to address with regards to the structure. If you are opting out of insurance there are a number of options. The biggest mistake in my opinion is charging too low. Conversions [into this private-pay marketplace] will eventually be unnecessary as the public becomes more aware of the benefits of these types of memberships. The big challenge is continuing growth after the initial conversion. Customer service, as described by some physicians, is the number one way to grow [this type of] practice. Linking the service to local self-insured employers is a good way to grow but certainly requires expertise with regards to structuring the appropriate benefit, usually a high-deductible plan with an HSA plus a membership.

Should you decide to revise your pricing every six months, make sure you reflect that in your sales forecast, research your competitors (not just the local direct-pay docs – they’re not your biggest competition as I stated above). While you may think the marketplace can bear a higher retainer/annual fee for your service, be cautious and take small steps before taking big ones.

[1] Concierge Medicine Today, April 2014

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