Article Date: 6/1/2005

business advisor
How Important Are Fees?

Charging low prices is not the way to build a high-volume private practice.

Here's a good question in this era of managed care and heavy corporate competition: What is the most important consideration for private-pay patients when it comes to picking an eye care provider? Is it price, service, quality or convenience? The point of this month's column is that while some patients may complain about your fees, charging low prices is generally not the way to build a high-volume private practice. Here's why.

The low-price myth exposed

According to a variety of consumer surveys, somewhere between 10 to 20% of your prospective patients will always consider price to be the primary factor when picking a doctor. But you have to be careful not to let a vocal minority have an excessive influence on your fees.

In reality, the vast majority of consumers don't base their purchase decisions on getting the cheapest thing available. If they did, upscale restaurants would be empty and hot dog stands would be packed, Kia would sell more cars than Lexus and wealthy people would live in trailer parks instead of luxury homes. Your patients are willing to spend money — and a lot of it — with providers that are able to meet their needs and expectations.

Larger practices charge higher fees

Several years ago, Hayes Consulting conducted an in-depth financial survey of more than 100 optometric practices. We took the annual gross income of each practice and divided that by the number of examinations performed over the course of the year to determine the average revenue per patient. We then evaluated the revenue per patient in terms of practice size. Here is what we found:

As you can see, the bigger the gross income of the practice, the higher the average fee per patient charged. Our data doesn't tell us if this is because the bigger practices charged higher professional

fees or because they sold more product at higher fees. Either way, one thing is clear — big practices consistently charge more per patient. More importantly, there is no evidence to indicate charging more presents any deterrent to practice growth.

In fact, the reverse is usually true because simple math tells us that higher fees lead to higher revenues. Using the numbers above, if Dr. Moore saw 2,000 patients a year at an average fee of $268 he would gross $536,000. On the other hand, if Dr. Les saw the same 2,000 patients at an average of $203 each, his gross would be only $406,000.

To be clear, I'm not saying you can't be successful with a low- fee, high-volume strategy. There are a number of large chains and even some individual private practices that have made a lot of money using a low price approach. But those are exceptions and it's a difficult strategy to execute for an O.D. who also wants to deliver high quality care.

Worry less

My advice is to not worry so much about other providers. Charge what you believe to be a reasonable fee for your services. Focus your energy on providing the highest level of customer service and patient care in your area. Do that and you won't miss the few patients who complain about your fees.

 

Practice size   Revenue per patient
Large $700k+  $268
Medium $300 - $699k $234
Small $200 - $299k $203

THE FOUNDER OF KNOWYOURSTAFF.COM AND HAYES CONSULTING, DR. HAYES IS A REGULAR CONTRIBUTOR TO OPTOMETRIC MANAGEMENT MAGAZINE. REACH HIM AT JHAYES@HAYESCONSULTING.COM.



Optometric Management, Issue: June 2005