Pricing for Membership Medicine — Part Two: What’s the Right Price?

Becoming a dad has a way of reorganizing your weekends. We’re in the Carolinas, so the beach is an easy drive, and we’ve fallen into a rhythm of loading up the car on Saturday morning and heading east. My six month old spends most of the trip watching the water and napping under the tent, and a happy baby on the sand is about all I’m after right now.

Summer has a way of making everything feel a little less urgent, which is part of why I wanted to get this issue out before the July 4th holiday. We’ve spent the last few weeks talking with practice owners across direct care, concierge, and functional medicine about how they set their prices, and it’s almost always the first thing they get stuck on.

Right now I’m especially interested in how practices have handled changing their prices. If you’ve raised your rates, rolled out a new price, or just wrestled with the decision, I’d love to hear how it went and how it was received by your patients. You can email me anytime at tom@ospreycfo.com. I really do enjoy these conversations, and I’ll do my best to make it worth your time. That’s what we’ll dig into in Part Three: how to raise your prices without losing the patients you care about.

A quick note on where we left off

Last time I laid out two ways to think about your pricing. One was the desired profit method, where you start with what you want to make and work backward. The other was the market method, where you look at what practices around you charge.

I want to be clear about the market this time because there’s a distinction that’s easy to miss. You should understand it, and it’s worth knowing what practices around you charge, but knowing the going rate and letting it set your price are two different things. The method we lean on, and the one I’d start from, is desired profit because it builds up from your own goals and your real costs rather than from the practice down the street. Use the market to read the landscape and to sanity-check your number and don’t let it quietly do the deciding for you.

The trap most practices walk into

Here’s how pricing usually goes for a new practice:

You look around at what everyone else charges.
You take the average.
You set your price a little below it, because you’re new and you want to feel competitive.
To stand out, you offer a little more than the practice down the road. More visits, more access, more of your time.
Now you’re underpriced and overdelivering.

It feels reasonable in the moment, but it’s worth a closer look. You’ve set your price off other practices that offer a similar service but are run differently, with their own costs, their own goals, and their own sense of how a practice should run. You’ve also sent a signal you didn’t intend, because in healthcare patients tend to read price as a proxy for quality, and a price at the bottom of the market rarely reads as a bargain so much as a question.

There’s a name for where this leads. It’s “more for less,” and it’s a slow way to wear yourself out. The fix isn’t charging more for its own sake, but stopping pricing from the outside in and starting from the inside out.

Start from the inside

Here’s the thing about a membership practice. You aren’t really selling a membership so much as selling your time and attention, in a fixed amount, to a fixed number of people, which means your price has to start with your own numbers rather than the market’s.

There are four questions, and they go in this order.

1. How much do you want to take home? Start with an honest number. Say you want $200,000 a year, which is about $16,700 a month. Keep in mind that’s a pre-tax number, what the practice pays you before Uncle Sam takes his share (taxes will be a topic for another newsletter).

2. What does it cost to keep the doors open? This is the step most owners rush, and it’s one of the most important. Add up the real monthly overhead, every line of it, from rent and utilities, a medical assistant, your EHR, billing software, malpractice, labs, supplies, payment processing, the accountant, and all the small stuff in between. Rather than run it from memory, pull your actual numbers and write each one down. For this example, picture a practice with one assistant and a small office, where it comes to about $12,000 a month, knowing yours could land higher or lower. Add that to what you want to take home, and you know what your memberships need to bring in. In this case, that’s $28,700 a month.

I harp on this for a reason. We’ve sat down with practices, put their real expenses next to their pricing, and seen within a couple of minutes that the math didn’t work, because the packages weren’t making money and no one had noticed, since no one had ever added it all up in one place. It’s a quiet problem, and a more common one than you’d think, and the fix is to actually sit down and do the exercise.

3. How much time does each patient take? This is the question few owners actually run the numbers on, and it isn’t only about the visits. You might see someone in person about three times a year, but in many membership medical practices there’s also everything in between, the after-hours texts, the quick questions, the back and forth when you’re not in the room together. Add the visits to that ongoing communication, and you could easily be averaging three to four hours a year per patient.

4. How many patients do you want? This one is part math and part personal. Those hours per patient set a ceiling, because your panel can only grow so far before the hours stop adding up. But a lot of people come to membership medicine for the lifestyle as much as the medicine, so the real question isn’t only how many you could carry, it’s how many you want to. How much time do you want for the rest of your life outside work, and where’s the line between a full schedule and a full life? Sit with that, and say you land on 250 members.

With those four numbers in hand, you can back into your price.

Monthly price = what memberships need to bring in ÷ your panel
$28,700 ÷ 250 = about $115 per member, per month

That number came from your own goals and your own capacity, not from the practice down the street.

Why pricing low costs you more than money

Now watch what happens if you start with the market and price a little under the average to feel competitive. To take home the same $200,000, here’s the panel you’d need at a few different prices.

At $85 a month, you need about 338 members.
At $115 a month, you need about 250 members.
At $150 a month, you need about 191 members.

The income is the same in every row, and the only thing that changes is the size of your panel. The cheaper you price, the more members you have to take on to hit your number, and the less time each of them gets.

That’s the part that should give you pause, because the small panel is so much of the point of membership medicine. A traditional primary care doctor carries somewhere between 2,000 and 3,000 patients, which is exactly the crush that pushes so many of them toward this model in the first place, whereas a direct care practice runs a few hundred, and that smaller number is what lets you actually know your patients. Every dollar you shave off the price pushes you back the other way, toward more members and less time for each one, and if you cut far enough, you start giving back the very thing that made the model worth building.

What the market is actually for

This is where the market comes in, mostly to sanity-check your price rather than set it.

Looking around is worth doing whatever model you run, whether that’s direct primary care, concierge, or functional medicine. The market tells you what patients in your area are already used to paying and what they’ll accept without much friction. It shows you where you’d sit next to the practices they might compare you to, and whether the number your goals produced is in a believable range or sitting way out on its own. None of that sets your price, but all of it is context worth having for the price you’ve already built.

So once you have your number, hold it up against the market. If it lands close to what comparable practices charge, that’s reassuring. If it comes out lower, don’t take the cheap number as a win, but ask what in your costs or expectations is out of line. And if it comes out higher, that isn’t automatically a problem either, as long as you’re genuinely offering something worth it, which brings me to the last point.

Price the value, not the competitor

When a patient weighs your $115 a month, they’re not really comparing it to the practice down the street so much as to the alternative, whether that’s the single urgent care or ER visit they’d otherwise sit through, the deductible they’ll likely never meet, or the half day of work they lose in a waiting room. Measured against any of that, real access to a doctor who knows them is not expensive.

So if you’re going to charge a real price, earn it plainly, with longer visits, same day access, direct messaging (with limitations!), and labs and medications closer to cost. That’s the honest version of premium, and it isn’t “more for less” at all. It’s more for more, and that’s perfectly fair.

To sum it up

Pricing from the inside out really comes down to a short list. Start with what you want to take home, add what it costs to run the practice using your real numbers rather than a guess, and figure out how much of your time each patient takes so that you can let it set how large your panel can be. Then back into the price and look at the market last as a guardrail rather than a guide.

Next time, in Part Three, we’ll get into the part everyone’s nervous about, which is how to actually raise your price without losing your patients. We’ll cover the timing, the message, and why the few who do leave were usually halfway out the door already.

Have fun and make a difference.
— Tom

This article was originally published in the Membership Medicine Entrepreneur newsletter. Subscribe free to get new articles every other week.