In this blog post I'd like to talk about the importance of developing a clear and consistent pricing strategy for effective medical practice management and ongoing business growth.
There are two main aspects I'd like to cover.
1) Why consistency is vital setting a pricing policy and enforcing it across the practice.
Quite often we find in a GP surgery or other medical specialist practices there are a few different doctors and, as a consequence, disparity across the surgery with what the doctors are charging. It may be that one doctor has friends come in and they may not charge them, while other doctors may be sure to bill each and every patient their due amount.
However, consistency is important. In a practice there should be a clear policy so that patients that use the practice have certainty around what they're going to be paying. For instance, in a GP practice, a patient may have a favourite doctor but if he/she is not available, they may find they are being charged a different price, which can cause problems.
A pricing policy administered in the medical practice software, and a pricing list of key services should be available for all patients. This is not only beneficial to the patients, but also to the practice managers and owners when it comes to end-of-year tax and financial planning.
2) Why it's important to set your practice pricing to work for you.
Setting an effective pricing structure is one of the most important things you can do to contribute to the growth and success of your practice. We suggest you decide on your pricing policy by increasing your understanding of where the money is coming from.
Make sure you understand every Medicare item number billed, and what quantity is processed every month or quarter. It's important to have a good understanding of which Medicare item number generates the majority of revenue for the business.
This analysis will help you understand what your business does for people and where the most demand is. It helps with business planning and understanding the skills the surgery needs and provides to attract customers.
It's also important to be aware of where your practice sits in the marketplace compared to your competition regarding pricing. The Australian Medical Association (AMA) puts out price lists. Have a look at this to help inform your pricing mix within your service offering.
Once you understand where the bulk of your earnings are derived from (this may only be 3-5 items), then it's also worth investigating what your competitors are charging, and deciding where you have scope to charge more, or need to hold or reduce your pricing to meet the competition around you.
It's important your pricing is commensurate with what you're doing and the value you offer to your customers. Make sure that the amount you charge is in line with what the service is worth and what the marketplace is demanding.
Brisbane medical practice: A case study
I had a meeting with a group of specialist medical professionals who were partners in a Brisbane practice together. Quarter to quarter, they were running at a loss. This was due in part to recent growth and expansion. They were slowly building up non-owner specialists and had recently moved. So this loss was in part a function of expanding the business.
However, we then discussed pricing and opened up their practice software. They explained that they bill a fixed amount for particular items, but also give away free services occasionally to keep people happy and to bring them in. Medical Financial Group determined from looking at the prices that they were giving away 20% of total revenue. Scrutinising internal data helps to give practice owners a reality check and realise they've been way too generous.
Be informed. Be consistent.
A successful medical practice will be aware of what is earning them money and their position within their local marketplace. Although many medical professionals work independently, having a clear practice-wide policy that is consistently applied will provide certainty to both patients and doctors and contribute to your practice's sustainable growth and profitability.
In conclusion, the key things to remember when setting your medical practice's pricing list are:
1) Research market prices make sure you're aware of what others are charging and how you fit into the marketplace.
2) Understand your practice operating costs your price list should be informed by your own practice's operating costs to ensure you aren't running at a loss.
3) Develop a pricing policy and stick to it.
4) Communicate and share this with all staff and patients.
If you'd like to find out more information about how a consistent pricing policy can help your medical practice grow, our team of financial services professionals is here to offer expert advice.
|Tags: Pricing Planning|
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