The Science of Setting Your Chiropractic Fees

Does setting your fees based on fear, haggling or a random throw of the dice sound good to you? Well, unfortunately, the majority of chiropractors fall prey to this “triple trap” and use one of these methods to arrive at their fee schedule.  In today’s post, we will discuss the strategic science of setting your fees for profit and positioning. Here’s why and how:

WHY THE “TRIPLE TRAP” WON’T SERVE YOU WELL

From my informal research in speaking to chiropractors at my seminars, emails from the profession, and even some coaching clients, I would estimate that approximately half of the DC’s set their fees based out of fear. They intentionally keep their fees low to “fly under the radar” of insurance companies hoping to ward off an audit. Other than PI carriers (with whom you don’t have a contract) and mandated payers (such as Medicare or Work Comp), low fees do nothing to protect you. After all, commercial payers have their fee schedule; if you are a contracted provider with them, you are bound to accept it. If you are not, you don’t have to accept their reimbursement as payment in full; then again, they are not going to pay you anymore. So either way, these payers don’t really care what you charge. They are paying the same regardless.

In the case of PI carriers, there is just a great of an argument to keep your fees high and virtually no argument to keep them low. Many PI payers pay at or near 100%, so low fees serve only to get you paid less than what you could be charging.

Certainly, I do realize that you can’t raise your fees into the stratosphere for PI. Before you email me your objection, yes I am definitely aware that not all PI carriers pay 100%. And I understand that some PI carriers utilize proprietary software or fee data that was apparently obtained from polling 3 unlicensed chiropractors who practice in Belarus, Bangladesh and the basement of their grandmothers house to obtain their “usual, customary and reasonable” (UCR) fees. So, yes, your PI fees matter somewhat here when they exceed the UCR fee.   But you will never receive a thank you letter from a PI carrier for keeping your fees low enough to make everyone else look bad; but that’s in fact, what you are doing (in addition to robbing yourself of income).

Perhaps the biggest fee fear factor, however, is in the face of patients. Too many chiropractors are afraid to charge their patients for what they do and look for creative ways to not collect co-insurance, co-pays or deductibles.

Worse than pure fear is haggling combined with fear. In this, I don’t really mean bargaining with patients over fees (although that does sometimes happen and it’s always bad). Rather, I mean haggling in the sense that chiropractors notoriously create price wars with each other to the ridiculous degree of lowering their fees to the point of a $20 adjustment. (In fact, if you like that business model, you can now fork over tens of thousands for a chiropractic franchise that will “help” you underprice yourself). If the DC’s would stop and do the math for a few moments instead of competing with each other on their fear (and their race to the bottom), they would easily see the corner they have painted themselves into with their $20 adjustment.

The final bad move chiropractors make with fees is to set them somewhat randomly. In this they have their staff pose as patients and call around to other DC’s or they just make up a set of nice even numbers and bump it up a dollar or two every few years. But there’s no real science and a lot of real randomness to how they arrive at their fees.

So now that we’ve covered what NOT to do, let’s switch gears and discuss what to do:

KEYS TO PROFITABLE FEE SETTING

  1. Know Your Model – there is no “right” fee that everyone should charge, but there is an appropriate fee that matches your business model. For example, if your business model is high volume, then a lower end fee structure makes sense because you are trying to see as many patients as possible. Like WalMart, you may have low profit margins per sale, but will make it up in volume. On the other hand, if you are in a low volume pace, spending lots of time with patients, you need to choose the Nordstrom’s route and have proportionately higher fees. Obviously you can see that if you charge the same as the low fee DC and see low volume, that won’t work. Similarly, high volume at high fee may be tough to pull off because high fee typically requires a high level of personalized service, which is difficult to achieve when you are spending a minute or two with a patient. Again, there’s no right fee, but the first step to fee success is matching your fee to your business model.
  1. Know Your Numbers – once you’ve matched your model, it’s time to crunch the numbers and make your fees realistic and profitable. Here’s where you have to put your gut aside and do the math. First, you need to consider your overhead and consider your Cost Per Patient (which can be calculated by figuring out your total overhead divided by your total number of visits per year; so if you had 5000 visits in one year and a total overhead of $200,000; CPP = $40). Then you can begin to hone in on where your fees need to be to match your model and make some money at the end of the day. For example, let’s say you are a medium volume doc charging a medium priced fee of $40. Sounds reasonable and average for many parts of the country. But due to some poor financial planning, high rent or whatever overhead factors there may be, your Cost Per Patient is averaging $40, you are not making any money. In other words, you average collecting $40 per visit and your overhead factors into a cost to see that patient of $40. Nothing left for profit = bad news. Now, raise your fee to $45 and you’re at least above water. Better yet, raise your fee to $45 and figure out how to increase your production (or lower overhead) so your CPP goes down to $30 and now you are really making headway. Regardless of the situation, as you can see, it’s important to know your numbers.
  1. Don’t Lose Money – this sounds obvious, but in practice it happens all the time. Let’s say your CPP is $40 and your average Medicare patient nets you $25. Easy math says you lose money every time you see a senior. Now, some of you may argue that CPP is just an average (and you are correct) and that the total lifetime value of that Medicare patient may be more because they could get into a car accident or they could refer others (presumably non-Medicare) and you are correct too. But those arguments are based on potential – sure the Medicare patient could potentially be worth more but you can’t potential. And if you have enough of these patients around you are going to be setting yourself up for some big trouble.

Case in point, I worked with a coaching client a few years back who consistently had a busy schedule, but never seemed to have any money to show for all his hard work. His billing person was astute and collected everything she could. He didn’t give away free services. His problem was that he was stuffed full of poorly paying patients. And since he was so busy, he had many staff to help him, which drove up his CPP. When we really rolled up our sleeves and analyzed his data, we found that 60% of his practice were “loss leaders” for whom he generated no profit. And unless he had a batch of new PI cases, his collections were low. On months, he had a bunch of PI, his collections soared. And he road this roller-coaster for years until we were able to hatch a plan to increase his profitability by helping him not constantly lose money to poor paying patients and payers.

SET YOUR FEES HIGHER!

The bottom line (and your bottom line) is simply this: there are many good reasons to raise your fees. In fact, some of you NEED to raise them in order to generate better profits. So do it. It’s that simple.

The PS — My Objection Smasher

Before we go, let me answer two objections you may have in advance.

  1. What about my cash patients? I know many of you will write in and say you can’t raise your fees because your non-insured patients will whine. Here’s my answer: keep things in perspective. The average DC is 80% insurance and 20% cash. To create a fee structure that is so low that it keeps all your cash patients happy is allowing the tail to wag the dog.
  1. Raising fees is useless because of contractual write-offs. Yes, if you plan to participate with every payer and you never plan to ever charge your patients for anything the insurance doesn’t cover, I agree that raising fees is of limited value. On the other hand, if you find yourself in a position where the fee raise doesn’t add to the bottom line, it’s may be a sign that the payers you are dealing with aren’t serving you well and it’s time to kick some of those low paying insurance companies to the curb as they are shackling you to a level that is unprofitable. Go out of network and value your own care enough to charge your patients what you are worth. You deserve it !

Need help setting your chiropractic fees? All of our chiropractic coaching clients receive a Fee Optimization as part of their overall strategy to help them increase profits and work smarter — and much, much more!  For more information on our coaching services, click the links above and to see how we’ve helped other clients like you improve their practice, be sure to check out our testimonials!

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