Insurance, capitation, and other payment structures have removed physicians from a critically important part of their practice: understanding and knowing the true value — and market cost — of their services. Because of this disconnect, physicians looking to start a concierge program often do not know how to price their programs.
Sometimes higher prices sound good as they mean more revenue, right? Others think that a smaller price will attract more people. Isn’t that true?
In fact, it is both a science and an art to determine the most effective price for a practice’s concierge program. Proper pricing can be the difference between success and failure. Just knowing what others in your area charge does not determine the best way to go. And remember that ultimately, sustainability is a primary goal for any pricing strategy.
Here are some observations and guidelines I’ve discovered from years of working to help physicians meet their financial goals.
1. One size does not fit all. A concierge company or consultant that sets a single price for your practice may be doing what’s financially best for their company, but not necessarily what is ideal for you.
2. Sustainability is key. One of the most important services that a concierge company can provide for its clients is to help set the most effective price for the practice, patients, and marketplace, and to then manage pricing — increases and potentially decreases — in a way that helps you maintain and grow your practice.
3. Increased prices may not translate to increased revenues. Many practices are struggling to manage flat or shrinking third-party reimbursements. However, you can’t just say, “my revenue is going down, so I’ll increase my program’s cost.”
4. The relationship between demand and price is not simply a straight line on a graph. There are prices that make sense to consumers and some that may reduce the demand dramatically. Prices that are too high may discourage membership, but too low and patients may not see value.
5. Make sure people get what they pay for. Programs that include defined services and not just an access fee — more specifically where patients have a tangible service or product for their fee — have a positive impact on the practice.
6. Remember that when you charge more, the demands and expectations of the members will also increase. Be prepared and ready to provide the service your patients will expect.
7. Be ready for an ebb and flow. All membership programs have an attrition rate. Just as in traditional practices, people move, pass away, and make economic decisions.
8. Higher priced programs are harder to refill and grow generally slower than lower priced programs. However, undervaluing services is just as bad as overpricing them. Physicians tend to go to the extremes — too high or too low. There is a definite “sweet spot” to pricing. However, most physicians need guidance to determine just where that figure is.
An example of how to find the sweet spot comes from retail pricing. People respond differently to price points that reach certain perceived thresholds. There is a difference in referring to a program that costs $150 a month and one that costs $1,800 a year — people can see how they can afford a few hundred dollars a month.
Retailers have long recognized that psychologically, going over certain “break points” has a stronger impact on demand that one would normally expect; just look at sales for items priced at $99 vs. $100 for the same item.
Recently one of my clients wanted to have a lower price for younger members. While we recommended against it, because we believe our programs should be flexible, we agreed to help the practice with their decision.
The outcome was exactly what we thought it would be. Older patients were not happy that they did not get the same benefit; and the demand by the younger patients did not change in any significant way. Of course there are many factors that impacted this particular practice, like pricing, service elements, and the demographics of the area. However, the end result still points to the fact that careful thought and consideration must go into pricing a concierge program.
Finding the right price for your concierge practice is critical to your success. Unfortunately when a program is incorrectly priced, it may lead to an unsuccessful venture and it could diminish the ability to recognize the true value of the practice and service. When this happens, a physician may retire, sell, or merge his or her practice without ever fully realizing its value.
What’s the right price for your existing or proposed concierge program? Only careful study with someone who understands the market, your needs and your practice can help you arrive at that number.