How to avoid medical practice pricing pitfalls and get paid what you’re worth
One of the most complex decisions practitioners face is what price to charge.
The typical thinking by most people starting out is to set the price at the highest rate with the intention of generating the most income possible. While not altogether incorrect, this assumption is flawed in that it does not take basic economic principles into account.
The principles of demand and supply need to be properly understood before any price in a business can be effectively set.
When setting your price, first ask yourself how many people need your service.
Now, you may believe there is an unlimited demand for your unique offering. But is it really that unique? How many others in the area you practice offer the same service?
Regardless of your opinion of their quality or standard, they may well have been there for longer than you and be better known to the market. This is the principle of supply!
If there are hundreds of service providers, the demand for your newly established service needs to be uniquely different. And to clarify, being highly priced is not a differentiator that works when you are starting out.
Price vs value
The next step is to understand the difference between price and value. New practitioners often confuse the price and perceived value of your service. Your value is not determined by the price you charge but rather the price you are paid.
Asking how much people are able to pay and how quickly that can be banked is the key to value.
Setting the price high and charging patients doesn’t mean that is the price you will be paid and ultimately bank. Too many have learnt the lesson of invoicing great numbers but carrying a massive overdraft with the bank because of lack of payment.
Rather, set the price at the level that those who need the service and will be prepared to come to your practice and pay for your service.
Being attractive and affordable to the target market you intend to serve are two of the key ingredients to building a sustainable and profitable practice.
Once you become known, and your service is in high demand, you can consider raising the price and thereby manage the flow to your practice. But whatever you do don’t limit the flow at the outset.
Naturally if you are the only provider of your service, the price you charge is more flexible, but the rule of being affordable and getting paid still applies.
The charity trap
At the other end of the spectrum are those who I often find giving away their services for either too little or charging nothing at all on a regular basis. Giving away your service sends the wrong signal, namely that you don’t value what you do or that it’s not worth anything.
Naturally, there may be times when you feel compelled to help someone out, but it’s never a good idea to make this a habit. Word quickly spreads that you do favours and you will be inundated with complex problems and patients who cannot afford your service, taking your focus from those who are willing to reward you for your care.
If you’re in private practice, you’re running a business and need to remember that you have costs to cover including your own labour as well as overheads like staff, premises and insurance. Don’t forget to factor in a profit for yourself, bearing in mind that a large share of this must be set aside for the tax man, with the rest covering the sustainability of the business.
As with buying property, location plays a large role in the pricing of service. Be aware of the prices charged by other services providers in your area. If you are setting up practice in a hospital you may want to check what corporate agreements they have with large Medical Insurers as this will affect you and the prices you charge.
If, for example, you set up practice in a hospital that treats patients on a specific plan and you don’t want to service those patients, the chances are that you will limit your flow of patients. Choosing to service that clientele will enhance your flow of patients.
Alternatively, if you set up practice in an affluent area and want to grow your share of the market, you may want to consider charging a little less than the established practitioners to attract those patients who cannot get into seeing the busy competitors who have raised their prices to manage their patient numbers.
Whatever your position and the stage your practice is at, pricing is critical to your business success. A misstep in your pricing may have far reaching consequences, possibly even threatening the viability of your enterprise. The good news is that some shrewd steps implemented timeously can kickstart a stalled practice or take an already sound one to the next level.
Expert advice can mean the difference between success and failure.
If you feel you would benefit from some assistance with your pricing strategy, please feel free to make contact with us. We’d be happy to put our deep healthcare industry knowledge and proven track record of success at your disposal.
BY ALISON MAYTHAM
“There are many different factors that determine the success of your practice – but, as a busy healthcare professional focusing on the needs of your patients, you may not always have the time to focus on the many demanding, and often complex, facets of managing your business. Vizibiliti provides you with easy access to insightful, comprehensive practice and business management solutions and advice across all stages of your business journey – from establishing, growing or closing your practice.”