Pricing for Membership Medicine — Part One: The Two Models That Matter

We're kicking things off with a deep dive into direct primary care (DPC) pricing. To make this series useful, we've been speaking with DPC and other membership-based practice owners around the country to learn how pricing actually works in the real world — what's worked, what hasn't, and how pricing strategies have evolved over time.

While most of our examples in this piece come from DPC, the same pricing principles show up in concierge and functional medicine practices that use a membership model (or are considering one).

The problem

For most DPC practice owners, pricing decisions don't get much airtime. You look at what similar practices charge, pick something close, and move on. But small changes in that number can make a big difference in what you actually take home — and many practices are leaving money on the table without realizing it. It's one of the first things we review with new clients and one of the most common areas where we find opportunity.

When it comes to setting your prices, there are generally two methods most practices use. For simplicity, we are focusing on membership pricing here — ancillary services are a topic for another day.

Approach #1: Desired-profit pricing

Desired-profit pricing starts with a simple question: how much do you want to make? From there, you layer in your practice expenses and your target panel size to arrive at a price that actually supports your financial goals.

At its core, the math is simple:

Monthly profit = Money coming in − Money going out

For a membership-based practice, that looks like:

Monthly profit = (Monthly membership price × number of members) − Monthly practice expenses

If you already know how much profit you want, you can flip this around to solve for your membership price:

Monthly membership price = (Desired monthly profit + Monthly practice expenses) ÷ Number of members

One physician we spoke with — a solo DPC owner with a panel of around 250 members — had not changed her pricing in the first two years of her practice. When she finally sat down and thought through what she wanted to make, she realized she wasn't far off. A $5 increase — 5% on her $100 individual monthly adult plan — got her closer to her target. That change translated to an extra $1,250 a month, or $15,000 a year, she had been leaving on the table.

In her case, only one patient left, and she suspected that patient was already on their way out regardless of the price change. The fear of patient turnover had been a much bigger problem than the actual turnover.

Approach #2: Market pricing

Before you can know if your price is right, it helps to know what the market will support. Market pricing gives you that read — a sense of what patients in your area are used to paying and what they are likely to accept.

You look at what other practices in your service area are charging and position yourself somewhere in that range. Generally, you want to sit mid to high — pricing too low signals "something's off" in a way patients may not be able to articulate but will still feel. Where you land depends on your experience and your service offering. If you are newer and still building your panel, it is hard to command the same rate as a physician with years of experience. But if you are genuinely offering a premium service, price it like that. More on that in Parts Two and Three.

Where the two approaches meet

This is where the two methods work best together. The desired-profit model tells you what you need to charge to hit your goals. The market tells you what patients in your market will actually pay. When those two numbers are close, you are in good shape.

When they are far apart — say you back into a number that requires charging $300 per month per member, but comparable practices in your service area are charging $100 — that is a signal worth paying attention to. It may mean your cost structure needs a closer look, your income expectations need to be revisited, or you are building something genuinely differentiated that the market has not caught up to yet.

All of this assumes you're in a market that can realistically support your service at your chosen price point. That bigger "can this model work here at this price?" question sits above everything we've covered so far and could easily be its own series — something we may come back to in a future issue.

If any of this raised questions about your own pricing, that's worth paying attention to. Next up, we'll walk through how to use these models in your own practice, and then how to implement a price change so you can increase revenue with minimal client turnover. More to come in Part Two.

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.