The Art of Setting Fees

Oct. 1, 2008
Fees are always an awkward topic! The self-esteem of the doctor plays a major role in the fee-setting process.

by Rich Willeford, MBA, CPA, CFP

Fees are always an awkward topic! The self-esteem of the doctor plays a major role in the fee-setting process. As a caregiver first and a businessperson second, most dentists are concerned that patients will think that their fees are too high. The good news is that we can lay that vague fear to rest — patients DO think your fees are too high! In ADA focus groups and other studies, two facts always stand out: (a) about 90% of your patients love you, and (b) about 90% also think your fees are "a little high" … but they keep coming back. Click here to view maps and table.

If BMW or Lexus invited you to a focus group, wouldn't you say that their prices are "a little high"? But you keep on buying! What do we make of this?

1. It is human nature for patients to remember what they used to pay for dental work in the days gone by. Of course, they forget that they thought the fees were too high back then, too!

2. Regardless of the fee amounts, focus group participants had the same "a little high" response. Whether you charged $500 for a crown or $950, both fees drew the same comment! You are not appeasing your patients if you keep your fees too low. Regardless of your current fee level, the typical patient is already driving past five offices with lower fees in order to visit your office!

3. The fee is about the only tangible part of the dental transaction that a patient can comment on other than the finished procedure.

4. The fee is about the only tangible thing the insurance company can focus on, and any fee is too high to them! It is only natural to get defensive after continual buffeting by insurance companies. But remember, they are not exactly disinterested parties. (Our own CPA association just received the good news that our group insurance carrier was going to offer dental insurance with 80% coverage of UCR. After some quick research — and with our latest fee survey in hand — we discovered that the insurance company's version of UCR was at the 30th percentile!) Keep up the good fight, and avoid setting your standards based on theirs. You need to set your standards and nail that flag to the flagpole!

5. I wish that patients were talking about you in the community as much as you are afraid they are! Think about it — the last time you raised fees, how many folks complained? How many folks even noticed? Dr. Joe Blaes tells a great story about Dr. Omer Reed, who would always tell dentists at the end of one of his classes to go back to their offices and raise their fees by 20% — no one will notice. And they never did notice! Then think of all the soul searching and anguish you put yourself through!

6. Be sure that your team buys into these fee increases. A team member that thinks you are charging too much can undermine your practice and cause far-reaching problems. Team members need to understand the process and enthusiastically support the fee increases.

7. To listen to my clients comment about other doctors' work, you would think every other doctor in town had hands of stone. But my clients' standard of care, choice of materials, lab quality, etc., just cannot be matched. But then I find one of my clients charging fees at the 50th percentile. If his or her work is that much better, why isn't he or she charging for it — at least at the 75th percentile? Often, the doctor and team need help in learning to communicate such value to their patients.

8. Dr. Tom Orent has made an interesting observation about the danger of being in the middle of the pack with your fees. Such a fee won't appeal to the totally price conscious shopper because it is "too high." It may not appeal to the quality shopper because it seems suspiciously "too low"! Go figure. You think you are delivering a good value, but you have already alienated both ends of the spectrum.

What all this means is (a) you are more sensitive about your fees than your patients actually are, and (b) it is obvious that patients are aware of your fees, but they are not driven by them, as long as value is perceived.

Setting proper prices is a problem for every business. In fact, an entire specialized area of cost accounting is devoted to the process. Unfortunately, even a purely mathematical approach is not as precise as you would think. Whatever theoretical figure you come up with — given your best estimates of time, material, etc. — it has to be tempered with reality. Some procedures simply are not perceived by the public to be as valuable as others.

So, if we presume market forces work reasonably well, it is not unfair to look at market comparisons as a starting point in establishing your own fees.

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