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Editor's note: The above article is excerpted from Points for Profit: The Essential Guide to Practice Success for Acupuncturists by Ms. Wolfe, Eric Strand and Marilyn Allen, to be published in February 2004.
Setting your fees can be just as important as your location, business name and style of practice. If your fees are too high for your locale, it may deter potential patients from considering your services. On the other hand, if your fees are too low, you will not survive long or at least not thrive in the world as we know it. So, how do you figure out your rates, especially when opening your first clinic? There are a number of factors you must consider when making this decision: the lifestyle and income level in your area; the going rates of other practitioners in your area; the amount of money you need (and want) to make to be comfortable; and what you think the value of your products and services actually is.
What's the Going Rate in Your Area?
Before you do anything else, find out the going rate for acupuncture in your area. This is an easy task that can be performed in an afternoon. With pen, paper and the Yellow Pages (or an Internet connection), jot down a list of all of the practitioners in your neck of the woods and call them. Don't be shy. There are more than enough patients out there for all of us to share. One new practitioner only increases the number of potential converts to our wonderful medicine. You should therefore be up front about what you are seeking. Tell the acupuncturist you are trying to figure out your own fees and ask what they charge; are their patients easily able to pay and continue with treatment; or do they notice that sometimes patients balk at rescheduling for "financial reasons"? If this is too scary, get a significant other or friend to call and simply ask for the rates at each clinic.
Other practitioners' numbers may be a factor in how you set your rates, but you need to know this information. If nothing else, you have introduced yourself to everyone else in the area. These practitioners are your colleagues, and you may come to rely on them in the future for referrals, for covering your practice when you are out of town, or for a bottle of herbal medicine you need for a patient (but which your clinic has run out of).
How Much Is Too Much? How Much Is Too Little?
So what do you feel comfortable charging? If you are charging more than what you believe your services are worth, it will come through in your body language and voice, and patients or potential patients will think them too high as well, even if the rates really are quite fair. However, if you charge extremely low rates and undercut all of the local competition, or you provide no-cost treatments, you may find your patient load slowly decreases into nonexistence. Why?
People assign worth and value to things based on what they cost. It is logical to believe that something more expensive must be better. Take, for example, the experience of purchasing a new vacuum cleaner. There you are, standing in the aisle, staring at 20 choices. Some of the vacuums have extension wands; some of them are bagless; others have a cool little light on the front or hypoallergenic filtration. Of course, the first thing we do is whittle down our choices to include only those vacuum cleaners that have the features we need and believe to be valuable.
The next step in the process is price. At one end is the least expensive vacuum, at the other the most. Most people involved in any buying decision will at this point start discarding choices based on the price. Do I really want to buy the cheapest one? Why is it so inexpensive? Maybe it will break quickly; will I be back here again paying for repair services? Away go the one or two choices from the bottom of the list. Those will be discarded first, before the vacuums that are too expensive!
At the other end of the spectrum are the Mercedes and Lamborghini of the vacuum world. They are sleek and shiny, have huge sucking power, and boast not just one light, but three. Do I really need all of those bells and whistles? That red one won't make me vacuum any faster or better. Plus, it's so expensive. Away go the top two or three choices. What we are left with now is a realistic selection of comparable items, all within a few dollars of each other. We can pick the one at the low end, the high end, or the one right in the middle. It won't matter, because now the playing field is relatively equal from the point of view of price.
The point here is that if you are the vacuum at the low end, you are likely to be immediately discarded as too cheap or possibly ineffective. Of course, there are some people who will gladly accept the cheap services you provide, but if a new client who has never heard anything about our industry calls around and considers several practitioners, they may decide that your fees are so low, there must be something wrong with your services. They will assign less value and worth to you and your services, and ultimately chose a higher-priced practitioner because of the perception of value. In the end, most people will make purchasing decisions based on perception of value and trust, not strictly on price.
Consider another example. Most of the people we know do not drive the least expensive cars on the road. They buy a car based on a complex set of perceptions and beliefs that include a wide variety of issues. Price may be among those concerns, but it may not be that high on the list compared to many other issues. The same is true of how we purchase health care services. People don't want cheap health care; they want trustworthy, caring, reliable and effective health care.
There are two other things to consider. First, it is well known that your personal income will be the same as that of your average patient. If your patients all make $25,000 to $40,000 per year, that's what your income will be, as well. That is one of the reasons why we suggest you check the financial demographics of any town in which you plan to set up a clinic. It may be wise to pick a town or area in which the median annual income is $75,000 to $100,000 if that is how much you want to take home. Second, it is a proven fact that people who are not charged at all, or who are charged very low fees, rarely get well as quickly and completely as people who are charged more. That means there is some relationship between the placebo effect and the amount of money paid for services rendered! If your clinic is lovely, your treatments good, your customer service better than adequate, and your bedside manner compassionate, you may actually get better clinical results if you charge a little more for your treatments than if you are charging too little. It bears repeating: People don't want cheap health care; they want effective, compassionate health care from someone they trust.
How Much Money Do I Need?
Set aside any of the numbers you have come up with to this point, and let's look at how much you need to make to live the life you want. We're going to start with the desired end result. How much money do you need, or want, for personal expenses per month? What's your number? $4,000? How about $10,000? This has to at least cover your expenses at home, including student loans, car payments, bills, and the like. Take your desired monthly income and write it down at the top of a piece if paper under the words Personal Budget.
Now, consider all the costs of running a clinic. While the numbers vary depending upon what part of the country you live in, we have found $4,000 a month to be about average. This includes 30 hours per week of front desk help, rent, business and malpractice insurance, CEU costs, phone service, heat, marketing expenses, some computer and accounting help, and office and practice supplies. Decide if your costs are a little higher or lower, and put your total under the title Monthly Business Budget. Add the total business and personal budgets together to get your total monthly budget, then multiply that total by 12. The resulting number is your overhead for one year.
Pretty high, isn't it? Don't panic yet; we're going to break this down into manageable bites as we go down this form. The next step is to divide your yearly overhead by 50 weeks. I say 50, because you do want some time off for a vacation, don't you? If you are planning to take more time off, then use the remaining number of weeks to divide into your yearly overhead.
Next, you need to decide how many hours per week are you planning to work, or write in how many you presently work. Are you a part-time practitioner, working 20 hours per week, or do you work full-time at 35 to 40 hours? Divide your weekly overhead by the number of hours you work per week. The number you have before you is the amount of money your clinic needs to produce each hour. This may be produced from treatments, product sales, rent income from other practitioners, or classes you teach.
Where does this number fit when compared to the results of the previous questions in this article? Is this required income per hour higher or lower than the average treatment price of other practitioners in your town? Will you have to see two or three patients per hour to get there, or can you meet your hourly overhead with one patient every hour-and-a-half? The answers to these questions also will have a lot to do with how many treatment rooms you have available and, therefore, how many people you can see per hour. If you perform lots of massage or tuina, you may only be able to see one person per hour. Also, if you have access to only one room, you are definitely limited in the number of people you can see, and your cost per treatment may need to increase (or you may need to consider moving). Remember, however, that your clinic can and should generate income in other ways besides just the treatments that you give. You may have a room to rent out one or more days per week or during the evening. You can, and probably should, have product lines that you sell in your clinic, such as Chinese herbal medicine, skin care products, orthomolecular products, books, or other items. Just as it is difficult to balance on a chair with only one leg, your clinic and personal budget will be easier to balance with more than one source of income.
What About a Sliding Scale?
Many public clinics like Planned Parenthood or other social service-style clinics base their fees on a sliding scale related to patient income. This is usually tied to the federal guidelines for what is considered above and below the national poverty line for the size of your family. It is legal to use a sliding scale, but you may want to require some type of verification of people's assertions about their income, such as tax returns or a few months' bank statements. You need not offer these discounts to people for whom you are billing insurance.
What Feels Right?
This is the last step. If you have done your research, asked your questions and added your personal figures, you should have a few numbers in front of you. Just by scanning them you will get a feeling for your personal comfort level with your treatment prices. Feeling comfortable with your pricing is extremely important. When you tell a new patient that he or she needs to come in twice per week for the next three weeks, that patient needs to sense that you are comfortable with your prices and believe you are worth that amount of time and money.
If you have checked the local competitors, and your pricing is someplace in the middle (neither too high or too low) and allows you to meet or exceed your clinic's hourly income requirements, you can rest assured that your prices are fair for your market. Being fair means that the people you serve will not feel taken advantage of or gouged by out-of-control medical costs. By setting your fees based on a combination of facts as well as your feelings, you are more likely to feel and behave comfortably with the financial policies of your clinic. The knowledge that your pricing will meet your personal needs without gouging your patients will give you confidence that you are doing what is right, fair and needful for both yourself and your patients.
Click here for previous articles by Honora Lee Wolfe, Dipl. Ac..
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