You may be just starting out in private practice & uncertain as to what to charge. You might be wondering if you’re charging too much given the financial implications of COVID, or not enough if your pricing is different from other practices in the area. Or maybe you’re just barely breaking even & unsure whether increasing your consultation fees is the right move.
Whatever scenario you find yourself in at the end of another challenging year in business, pricing correctly is more important than ever. You need to have a clear understanding of whether your pricing adequately covers your expenses & what impact your pricing has on the growth of your patient population & business overall. Only once you have a better idea of these things can you make strides towards generating positive cash flow & sustainable profit.
In this article, we discuss 3 important considerations when setting your consultation fee & some other tactics you can implement to increase your profitability, if raising consultation fees is off the table.
3 key considerations when deciding how much to charge
How do you set the right consultation fee for 2022? If it’s too high, you risk losing patients; if it’s too low, you might not cover your costs. Basic guidelines provided by medical scheme tariffs are just that – guidelines & there is no one-size-fits-all answer for every practice. However, there are 3 guiding principles that you can use to help you set a consultation fee that will be good for you & the patients you serve.
1. What costs do you need to cover?
Your consultation fee should ensure that you are covering all your practice costs & then some. For example, below is a basic cost % pyramid on how you could go about calculating your required consultation fee based on your practice costs.
If we use the Practice % Pyramid¹ & you want a salary of R30 000 each month, then your other practice costs should look more or less like this:
40% salary: R30 000
20% other costs: R15 000
13% Support salaries: R11 250
7% Rent: R5 250
20% Profit: R15 000
Total practice cost per month: R75 000
Based on this simple example, if you are seeing 100 patients per month, you will need to set your consultation fee at R750 per consultation (R75 000 in monthly costs / 100 patients per month). This model is obviously a basic guideline & you can adjust the various % within the pyramid depending on your unique practice needs.
2. Where is your practice located?
From the graph below, you will see that just like the price of goods & services vary from province to province, the rate for medical consultations varies too, depending on location.
Please note due to Northern Cape’s small sample size, findings may not be 100% representative.
Surprisingly, Gauteng – which has had the highest consultation fee on average previously – has seen a negative growth of 18% since 2020. This points to the importance of factoring in the impact of COVID on the economy & specifically, the unemployment rate & patients’ ability to pay.
The negative growth is not limited to Gauteng & in fact, the graph shows that the average consultation fees in 2021 have decreased by an average of 12% across all provinces, with Gauteng, Limpopo, North West & Eastern Cape being hit the hardest.
Although averages give us an idea of variation between provinces, taking a closer look at the data we can see that there are significant variations in consultation fees within the same province. For example, the graph below shows a 67% difference in consultation fees between Lonehill & Newtown.
We know that there are complex dynamics that contribute to the price of consultations, but what we can assume from the data is simply to know your demographic. It’s true that a single practice’s patient population can vary from affluent to less affluent, but it’s unlikely that there is an even split. Looking at your patient population you can gauge the average Socio-Economic Measure or SEM of the majority of your patient base & use that to set fees accordingly.
Our data also shows that a higher consultation fee is not necessarily an indication of practice profitability. A practice that largely sees less-affluent patients can do as well financially as one serving a small number of higher-income patients.
3. What medical schemes do most of your patients belong to?
Look at your practice data to determine what medical schemes your patients belong to. If a large proportion of your patient population belongs to a specific medical scheme, it makes sense to explore contracting with those medical schemes. This is because not only will your practice be paid directly from the scheme, minimising the need to collect directly from patients, but you will be paid at the maximum scheme rate.
For example, the graph below shows the number of claims & the Rand value of these claims for a General Practitioner’s (GP’s) practice over a period of a year. You will see that 60% of the practice’s patients belong to Discovery Health. With this information, the doctor can decide whether to enter a preferred payment contract with Discovery which will increase the average claim by R772 per consult or R95 8653 per year4.
Graph extract from Healthbridge’s Business Insights Report
Ways to increase revenue without increasing your consultation fee
1. Be sure to charge for all procedures & consumables
Too many practices disregard consumables & don’t bother billing for them. The reality is that consumables cost money & if your patients aren’t paying for them, then it’s coming out of your practice profits. Charging R12 for consumables might seem trivial but when multiplied by 15 patients a day, it adds an additional R3 9604 to your monthly revenue – or R47 520 a year. Billing for consumables as a separate line item means you can recoup the cost without increasing your consultation fees.
2. Reduce or renegotiate practice costs
A key way to increase practice revenue is to reduce practice expenses. Impossible you say? Pull up a bank statement & go through it line by line to know where your money is going. Ask yourself these two simple, but crucial, questions for every expense on the list.
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- Do I need this? If an item is something that you absolutely must have for your business, then answer ‘yes’ & move on to the next question. If, however, it’s not entirely necessary then take a moment to think about what your day-to-day working might be like if you didn’t have the item or service. If you don’t really need it, you don’t need to spend the money on it & this exercise alone can contribute hundreds, if not thousands, to your monthly profit margin.
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- Can I get a better deal? Of course, you can’t avoid some expenses like rent, loan repayments, office supplies & equipment, etc. There are must-haves that you can’t run your business without so there’s no way you can completely eliminate them from your costs. You can, however, ensure that you are getting the best deal for them. Can you renegotiate your rent? Can you refinance your loan at a lower interest rate? Can you get a better deal on your phone contracts & utilities? Can you get a better rate from your suppliers?
It won’t always be possible to pay less for certain services but it’s worth looking into, especially if it’s just a matter of comparing the going rates for a service & asking your provider to match current offers in the market. Sometimes it will mean switching providers, but bear in mind that increasing your profit margin by a percent or two can make a big difference in the long run.
For many, 2022 will pose challenges in terms of growth & sustainability. To help you better prepare for the new year ahead click here, for a complimentary practice assessment by a skilled Healthbridge Business consultant who will help you to discover more ways to increase your revenue & decrease your expenses in 2022 & beyond.
Notes & references
- The Practice % Pyramid by The Hive
- Value-based on an increase in rate when moving from a Discovery non-contracted (R416.60) to a contracted rate (R493.60) at current claim volume indicated in the graph.
- Based on 1245 claims being sent to Discovery during that year
- Based on a 22-day work month
Disclaimer: The information provided is general in nature & should not be considered professional advice. In all cases, you should consult with professional advisors familiar with your particular situation before making business, legal or any other decisions.
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