Pricing Thoughts Overview

  • How do you set your fees?
  • How much is too much and how much is not enough?

For diagnostics, some audiologists may look at the fee schedule provided by third parties such as Medicare and wonder if those fees should be the fees for all patients.

For products, audiologists may use manufacturers’ suggested retail pricing to determine how much should be charged.

Yet neither of these approaches seem to make financial sense. They are a little like asking your grandparents what they paid for a new home or a loaf of bread in 1970 and using that as a marker when shopping today.

If, for example, Medicare reimburses $39.00 for a comprehensive audiologic evaluation (current procedural terminology or CPT 92557), is that really sufficient to cover the costs associated with providing the services, including the overhead for equipment, rent for the office space, and supplies?

In the same manner, when setting a price for hearing aids, will a set multiple such as 2–3 times the purchase price cover the costs and profit goals for a practice in Los Angeles or Manhattan in the same manner that it will in Clarksville, Tennessee, or Louisville, Kentucky?

“The single most important decision in evaluating a business is pricing power,” Warren Buffett once said (Frye and Campbell, 2011).

The literature on management is filled with approaches to setting prices (Traynor, 2019; Robinson, 2015; Bloomenthal, 2019).

Cost-Based Pricing

Cost-based pricing, for example, may be popular in some audiology clinics where products are marked up a fixed percent or multiple of the purchase price. For example, if the practice paid $500 for a hearing aid, then the price to the patient, inclusive of fitting fees and services, might be three times the purchase price, or $1,500.

The weaknesses of this approach include the question of whether the patient or a third party will pay this price. Also, one must consider whether the same or a similar product is available from the competition at a different price. This pricing approach often is established without consideration of whether it will cover expenses and meet financial goals.

Competition-Based Pricing

Competition-based pricing, another pricing strategy, may resolve one of the weaknesses of cost-based pricing by setting prices based on the prices offered by the competition. Inherent in this pricing strategy is the belief that price is one of the most important purchase criteria of our patients and, if you don’t offer a competitive price, coupons, or incentives, the patient will go elsewhere.

A weakness of this approach is that the value is placed on the price and not the quality and benefits of the care offered to the patient. Also, it is not common for patients to select a provider based on the costs of their diagnostic and treatment services. People do not select their surgeons based on costs.

In the same manner, patients do not select audiologists for diagnostic evaluations based on the charges for these services. In some respects, industry has made costs relevant to consumers, particularly for those practices that focus more on products than the full scope of audiology services. This, however, places the audiology practice in the retail arena rather than the health-care arena.

Customer Value-Based Pricing

A third approach to pricing is customer value-based pricing, which is based on the belief that perceived customer value is the primary factor in patient decision making. It is not about the price, but about the quality of care. Prices are driven by an understanding of patient needs and their perception of value. In this example, patients are driven by best practices and patient-centered care, rather than prices.

Your Financial Needs

Today, there is constant pressure on clinics to generate the revenue necessary to meet costs. Employees want raises in salaries, operating costs and overhead continue to increase and, all the while, third parties such as insurance companies reduce reimbursement. In addition, competition is entering the market at lower prices, which also could reduce clinic revenue.

It, therefore, is necessary to understand the importance of pricing and setting fees in a clinic environment. The purpose of this article is not to suggest a standard set of fees for audiology practices. Just the opposite. All clinics have unique financial needs such as different rent, overhead, and salaries. The importance is understanding these differences and accounting for them with revenue and pricing strategies.

Setting Prices in Today’s Health-Care Environment

  • How often do you sit down and list all the services and products offered in the practice?
  • How often do you consider the time it takes to deliver the services and products?
  • How often do you consider the costs associated with these activities?

Hopefully, your answer is not “never” or “rarely!” Regardless of your position in a practice, it is important to consider pricing, not just for profitability, but also to understand the impact on patient services.

During the past few years, articles and presentations reviewed more than a decade of data provided by Centers for Medicare and Medicaid Services (CMS) on payments to audiologists for services provided to Medicare beneficiaries. These articles and presentations were focused on reimbursement, best clinical practices, and comorbidities of Medicare beneficiaries referred for audiology diagnostic procedures (Windmill and Freeman, 2019; Windmill et al, 2019).

The data presented was extracted directly from open-access materials available from CMS. These materials are accessible for public review and include the following:

The authors of this article spent the past two years going through the data to share with colleagues. We understand that some of the data may result in information that is contrary to traditional teachings, but this data is based on actual CMS payment data to audiologists and not suppositions or opinions.

Any opinions offered here may not be consistent with those of the Academy or other published literature, but are based on actual data provided by CMS on the procedures of individual audiologists based on their national provider identifier (NPI) numbers and billing practices.

The CMS data includes the “Medicare allowable” or the amount Medicare authorizes for each service and the “average Medicare payments,” generally 80 percent of the allowable with the 20 percent co-pay balance due from the patient or the co-payer.

In addition, CMS publishes the “average submitted charge” for each billed procedure. That is, CMS provides the actual reimbursement paid to each audiologist in the United States and also includes the usual and customary amount the audiologist billed for each procedure.

TABLE 1. Example of Medicare-allowed charges, payments, and submitted charges by audiologists for two audiology diagnostic procedures.

CPT
CODE

PROCEDURE

AVERAGE
MEDICARE ALLOWED

AVERAGE SUBMITTED
CHARGE BY AUDIOLOGIST

AVERAGE
MEDICARE PAYMENT

RANGE OF SUBMITTED
CHARGE BY AUDIOLOGISTS

92557

Comprehensive Audiology Evaluation

$37.58

$107.58

$26.23

$22.34–$635.00

92567

Tympanometry

$14.38

$46.12

$10.21

$12.00–$274.00

 

A summary of data provided by CMS (TABLE 1) for two CPT codes (92557 and 92567) suggests pricing variability among audiologists across the U.S. For example, the “average Medicare allowed” (average amount authorized for payment to audiologists—TABLE 2) for a comprehensive audiology evaluation (92557) was $37.58 in 2017. This was slightly less than the average permitted payment of $37.97 based on the relative value unit (RVU) for 92557 in 2017.

TABLE 2. Definitions of terminology.

Medicare-Allowable Rates also are known as the Physician Fee Schedule. This is the amount that Medicare will pay for a procedure or service.

Submitted Charges of the Audiologist also are known as the usual and customary charges and represent the amount the audiologist submits to Medicare for payment for a procedure or service.

Medicare Payment represents the actual amount paid by Medicare for a procedure or service. Traditional Medicare pays 80 percent of the allowable, and the beneficiary is responsible for a 20 percent co-payment.

 

Medicare agrees to pay 80 percent of the Medicare allowed amount, which, based on the $37.97 authorized amount, should have been $30.06. The patient, then, is responsible for a 20 percent co-pay. Yet, the average Medicare payment to audiologists was $26.23, or an average of $4.00 less than the 80 percent Medicare-allowed payments for covered services.

There are several possible explanations why the average payments were less than the Medicare allowable. For example, provider reimbursement varies by geographic factors. Alaska audiologists are paid approximately 31 percent more than the national average, while audiologists in Mississippi are paid seven percent less.

Similarly, audiology clinic settings can cause variations in reimbursement. “Non-facilities” (e.g., independent audiology practices, otolaryngology offices, clinics that are not part of a hospital) are reimbursed, on average, at slightly higher levels than “facilities,” which are inpatient or outpatient hospital-based facilities.

Another contributing factor to variations in reimbursement is the usual and customary fee charged by audiologists. Medicare providers are permitted to submit usual and customary charges to Medicare for services. These are fees established by audiology clinics to deliver the services to their patients. The Medicare fee schedule is set annually and may vary greatly from the usual and customary fees set by clinics.

The data in TABLE 1 reveals that the average usual and customary charge submitted by audiologists for 92557 was $107.58. However, the charges submitted to Medicare by audiologists ranged between $22.34 and $635.00 for the 92557 CPT code.

Eighty-two audiologists billed less than $38.00 to Medicare for 8,781 patients and an additional 147 audiologists billed Medicare $38.00 to $43.00 for 20,422 patients, according to CMS data. This suggests that some audiologists are submitting charges to Medicare at or below the authorized Medicare-allowable charge.

When a submitted charge to Medicare is less than the authorized allowable, Medicare only pays 80 percent of the submitted charge. It is assumed by Medicare that the costs necessary to deliver services are lower than the costs calculated by CMS when the fee schedule was developed.

Similarly, for clinics that charge more than the Medicare fee schedule, it must be assumed that their clinic costs are higher. It is understandable that fees will differ nationally and across clinics. Of course, the key question is whether the amount charged was sufficient to meet the financial and operational needs of the clinic.

The finding was similar for Tympanometry (92567), where the average Medicare allowable charge was $14.38. Medicare pays 80 percent of the allowable amount, which we assume would be average payments of $11.50 to the audiologist, with the 20 percent balance paid by the patient or co-payer.

However, the average payment to audiologists was $10.21. Again, there were a wide range of charges submitted by audiologists, ranging from $12.00 to $274.00, for a tympanogram (92567), and the average charge submitted by audiologists was $46.12.

This is a time when pricing is being closely scrutinized in health care and, especially, in hearing health care for two reasons: (1) Over-the-counter (OTC) products will be entering the commercial market and (2) the U.S. Department of Health and Human Services is considering a study of the risks or benefits of allowing audiologists to furnish audiology services directly to Medicare beneficiaries without a physician referral (U.S. House of Representatives, 2020). Therefore, it is a good time to assess pricing and fee schedules to assure the profession is properly valued in the health-care system.

Fee and Pricing Strategies for Audiology Practices

A practical approach to setting fees and prices for products and services begins by understanding the financial needs of the practice and the costs associated with delivering quality patient care. This does not account for some of the psychological aspects of pricing, nor does it consider the pricing constraints associated with third-party payments such as the Medicare fee schedule.

Instead, the following steps are proposed to assist the audiologist in understanding the value of their services and the financial requirements to keep a practice operating efficiently and profitably.

TABLE 3. Example of professional services and associated CPT codes within an audiology practice.

PROCEDURE

CPT

Comprehensive Audio

92557

Tympanometry/Reflexes/Decay

92570

Otoacoustic Emissions (OAE) Diagnostic

95288

Basic Vestibular Evaluation

92540

Synthetic Sentence Identification (SSI) Test

92576

Auditory Evoked Potentials

92585

Evaluation for Surgically Implanted Device Candidacy

92626

Hearing Aid Evaluation

 

Hearing Aid Fitting

 

Counseling, Follow-Up Visits (15-Minute Increments)

 

Legal Deposition (Per Hour)

 

 

Step 1. List the services provided in the practice (see the example in TABLE 3). This could be a list associated with CPT codes, but some procedures may not have relevant codes (such as legal depositions, noise studies, consulting, etc.). The key is to list everything offered by the practice.

TABLE 4. Example of annual overhead expenses exclusive of product costs.

DESCRIPTION

COST EXAMPLE

Rent

$25,000.00

Insurances

$2,500.00

Loan Repayment

$18,000.00

Utilities (e.g., phone, internet)

$6,000.00

Postage/Mail

$600.00

Supplies (office and clinic)

$2,000.00

Marketing

$18,000.00

Administrative Salaries/Benefits

$45,500.00

Audiologist Salary/Benefits

$130,000.00

Professional Fees (e.g., accounting, legal)

$3,000.00

License and Memberships

$1,000.00

Professional Development/Travel

$2,000.00

Miscellaneous (e.g., coffee, magazine subscriptions, etc.)

$1,500.00

Reinvestment for Practice

$50,000.00

Total Annual Expenses (not including products)

$305,100.00

 

Step 2. Know the costs associated with delivering services. TABLE 4 presents a list of overhead expenses, exclusive of the cost of goods and products for a practice, based on lists provided by Traynor (2019b).

For this example, it is estimated that expenses average $25,425 per month or $305,100 per year, exclusive of the costs associated with purchasing products. These often are referred to as the costs to “keep the doors open,” or the costs that must be covered, even if the practice had to close its doors for a period of time due to a special event (e.g., natural disaster, illness, pandemic, vacation, etc.).

TABLE 5. Revenue required to operate practice.

DESCRIPTION

MONTH

ANNUAL

Workdays

20 days

220 days

Billable Hours @ 6 Hours/Day

120 hours

1,320 hours

Revenue Needed to “Keep the Doors Open”

 

$305,100

Revenue/Hour

 

$231.14

Revenue/Minute

 

$3.85

 

Step 3. The next step requires a projection of the number of hours the audiologist will provide billable services per month and per year and the revenue required per hour to operate the practice (TABLE 5).

In a typical month, services may be delivered five days per week, 20 days per month, six hours per day or 120 billable hours per month. With consideration for holidays, vacations, or other factors requiring office closure, there could be 1,320 billable hours per year (11 months). Of course, this may vary by audiologist.

Based on the number of billable hours per year and a goal, in our example, of generating $305,100 per year to cover expenses, the revenue required per hour to operate this practice is $231.14, or $3.85 per minute (TABLE 5).

Step 4. These projections are applied to establishing a fee schedule. Each clinic should be able to estimate its own usual and customary time required to complete a procedure.

If it is estimated that the procedure, on average, takes one hour, then a good starting point for establishing a fee for this procedure is $231.14, based on the need to generate $3.85 per minute to operate the practice. These should be considered as starting points for establishing fees.

Other factors that could influence fees include, for example, the knowledge and skills required to perform a special service such as a legal deposition or pediatric services. In our example, while $231.14 may be required per hour to meet the financial needs of the practice, the specialization of the services may justify a higher hourly rate for some of these services.

Hearing aid pricing and treatment plans also can be set following these steps. In a bundled model, for example, it may be determined that the patient will receive 10 hours of service associated with the fitting and sale of the products in the first year.

At $231.14 per hour, the patient may be charged $2,311.40 for the professional services, plus the cost of the products for a one-year plan. Of course, this would vary based on the number of years of service bundled into the service plan, warranties, and the levels of technology associated with the patient needs.

As more patients purchase over-the-counter or online products, they still will require the services of audiologists to provide the services necessary to assure success with amplification. Setting fees for these services, excluding the price of the product, can add value to the practice and the patients.

Conclusion

The rules of economics, finance, and management apply to audiology practices and it is important to know costs while defining professional and financial goals. Focus on evidenced-based and patient-centered practice, but also know your value. Remember, in health care, patients and third parties are looking at outcomes and the value associated with the services, rather than the costs associated with the services.

Audiologists should set their prices so that the practice will be solvent and profitable, while also placing a fair value on the practice and profession. Appropriate and justifiable pricing also will send a consistent message to third parties about the value of our knowledge, skills, and services.