Setting fees with an eye on the economy (Proceedings)

Setting fees with an eye on the economy (Proceedings)

Apr 01, 2009

If you're not charging the right fees, you could feel the pinch when you want to invest in new medical technology or give your doctors and staff members a raise. Without the right fee-setting strategy, you could find that some fees get too high, while others don't reflect the value you offer. And, how do the current economic challenges impact your pricing decisions?

As Dr. Deborah Beck-Ross of Penn Animal in West Grove, PA says, "We know that setting fees appropriately and charging for all of the services we provide is critical to our practice's financial success and gives us the resources we need to continue to elevate patient care. We're also aware that if we don't continue to raise the bar, there'll be a limit to what clients are willing to pay".

Dr. Beck-Ross who owns one of the practices that participated in Benchmarks 2007 - A Study of Well-Managed PracticesSM , says she looks at her fees in terms of her overall strategic plan. "Our strategic plan includes a decision to attentively monitor the quality of client service and the level of patient care to ensure that both reflect our structure," she says.

This more strategic look at fees, a departure from across-the-board increases, gives you more control. Ideally, you'll review your fees twice a year and selectively determine which ones need to be adjusted and by how much.

As you examine your fee structure, remember price is rarely an issue for clients unless you don't meet their expectations for service. (They do want a convenient location, ample parking, a clean facility, friendly and professional healthcare team members who recognize them and their pets, and doctors who stay on schedule). So don't get distracted by thinking about what you think clients will pay. Your fee structure should reflect the quality of client service and the level of patient care in your practice.

Three fee-setting strategies

Figure 1– Applying pricing strategies to set fees
The key to setting fees that reflect the value and service you provide is to apply different strategies to products and services depending on the factors that affect them. These factors include the competition in your community, your costs, and the value your clients place on the services and products you provide. These three pricing strategies help you adjust for those factors (see Figure 1).

1. Competitive. Use a competitive pricing strategy for price-sensitive services such as vaccinations and elective surgeries. Compare your practice and its fees to other practices in your radius. Consider the number of doctors, practice hours, level of medicine, type and condition of the facility, community reputation, specialized services, and so on. Perform a market research asking your staff members to call surrounding practices to gather this information.

2. Cost-based. Use a cost-based pricing strategy to price inventory items. The average markup on most products ranges between 150 percent and 175 percent. Markups range between 50 percent and 90 percent for higher-cost medications; practices typically markup heartworm and flea control products 100 percent.

3. Drugs that remain on the shelf for three or more months require a 225 percent to 275 percent markup to cover the additional carrying costs. Dispensing fees and minimum prescription fees will vary depending on community economics. Tip: If you receive a discount on a bulk purchase, keep the discount instead of passing it on to clients.

4. Value-based. For doctor-provided services and services that affect the client's perception of value, use value-based pricing. An easy way to do this: look at the relationship between the exam fee and other value-based fees.

Your value-based fees can be higher than any other practice in your community, as long as you offer a good value for the price. If you don't, clients will look elsewhere. Use Benchmarks 2009 - A Study of Well-Managed PracticesSM results and the 75th percentile column of the AAHA Fee Reference as a guide for pricing value-based services.