Unbundling, What Do You Need To Consider?

What is imperative for a successful unbundling strategy?

By Geoffrey Cooling

 

Unbundling has been a hot topic on the agenda for a while, should we, could we, will we? It is a question that may well be taken out of our collective hands. New entrants into the market may well follow it as a strategy and then traditional business models may well have to react.

 

If in fact we are faced with such a scenario, what do you as a Practice owner need to consider? In order for unbundling to be a viable business option you need to understand the cost of running your Practice. You need to be intimately aware of the cost per hour of providing your hearing healthcare services.

 

Once you are aware of the real cost of running your Practice you can then set an hourly rate for labour that covers those costs and provides a healthy profit margin. But what are the costs that you need to assess, think everything:

 

Wages costs including contributions and benefits

 

Utilities

 

Insurance costs

 

Professional fees

 

Marketing budget

Cost of Patient acquisition

 

Continuing education fees

 

Fleet costs

 

Rent and rates

 

Equipment costs factoring in maintenance and replacement

 

Consumables used

 

Don’t forget those hidden costs, tubing tips, filters, batteries, ear hooks etc. Those costs add up and  mount up quickly and do affect your bottom line. Once you have those figures on a monthly, quarterly or yearly basis, it is a simple calculation to assess your hourly cost of Practice. Divide your costs by man hours and you are left with cost per hour.

 

It is important that you remember that your hours are opening hours multiplied by members of staff. Do not forget that members of staff will fluctuate because of holidays. It is imperative that you factor in every cost to your business, my list isn’t exhaustive. You will know your Practice and it’s costs, ensure that you have factored in everything. Once done you can add a reasonable profit margin.

 

But what is a reasonable profit margin? most businesses would consider 30% true profit as a reasonable return. That is not to say that you would see it as reasonable, your chosen profit margin is personal. This calculation is purely to apprise you of your true labour costs. It will allow you to set a base rate for your services.

 

The actual rate for your services may well change, will a hearing instrument fitting be charged at the same rate as an audiological work up? What about tinnitus therapy sessions or rehabilitation sessions? This is up to you to decide, but once you have your base rate it is an easier decision.

 

You also need to consider retail pricing of goods, again you need to look at your true costs of goods. Factor in delivery costs, handling costs and price of goods. Add consumable and acoustic fitting costs (molds, tubes, tips), your chosen profit margin and you have a retail price for all of your products.

 

This exercise should be undertaken whether you are considering unbundling or not. It is a worthwhile exercise to understand the projected profitability of your business over a given year. It is also an imperative to be prepared for any eventuality in business. That is the core need of any business, the status quo, as much as we would like it to, may not remain constant.

 

We live in exponential times, at no time in human history has change been more rapid or more wide spread. I sometimes sit in wonder at the changes that have taken place in society and technology over just the last ten years. That is why future proof planning is a core need for your business. History is full of failed businesses that failed because they were unable or unwilling to change. Don’t be one of them.

 

Regards

 

Geoff

About Geoffrey Cooling

my name is Geoffrey Cooling and I am the author here at Just Audiology Stuff. I have been involved in the Hearing Healthcare Profession for several years now. I initially worked as a Hearing Healthcare Professional for a large national retailer in Ireland. After several years in Practice I was approached to work for a manufacturer, where I was employed for five years. I am now the Co Founder of a business called Audiology Engine. We design websites, undertake content marketing and generally look after everything digital for audiological practices. I am also a contributor to many hearing profession periodicals and websites. I have written two commercially available books, The Little Book of Hearing Aids which is written for hearing aid consumers and Audiology Marketing in a Digital World which is written for Audiology Practice Owners. They are both available in Paperback and Kindle versions on Amazon. I also write for consumers on the website Hearing Aid Know, which is a website with the mission of demystifying hearing aids, their types and their technology. I have a great interest in commercial strategy as it applies to Healthcare in general and specifically to Hearing Healthcare. I also have a great interest in the psychology of sales and human interaction. I have been involved with social media for some time, both personally and professionally. I find the engagement and discourse on some social media channels fascinating. I instituted social media strategy for the company I worked for as an experiment. That experiment soon spread throughout the company and I am proud to say that the company is probably one of the most active in the industry. I would like to point out that all views, opinions and thoughts here are mine own. Unless of course they have been planted by the pod people, you just can’t take your eyes off the pod people. Those views do not necessarily reflect upon any views or opinions held by my employer, if I ever get another one. I think that our industry is in the middle of a time of huge change, I think that the change will be forced by both internal and external pressure. I think that private Independent Healthcare Practices will have to be smart and lithe of feet in order to meet these changes. I hope that some of my blatherings are of benefit to those Practices, Independent Hearing Healthcare Practices need to survive. I believe that if that occurs it will be of real benefit to Patients. I hope that I, and my writings will play a small part in their continued success.

4 Comments

  1. Pingback: Unbundling in hearing healthcare, what if the choice is taken away?

  2. Great Article and opinion once again Geoff, we have discussed this scenario before and if I was going solo it’s a model I think I would use. In my opinion it will allow more people direct access to amplification privately where currently cost is hugely prohibitive. I’ve looked at this model in great detail with my management accountant.I for one won’t be left with my finger in my mouth wondering what has happened when ” unbundling ” arrives en mass !

    • I think that the mechanics of the market here and the UK leads to easier entry for such a disruptive player and business model. I certainly would advise that everyone undertakes the same exercise as you Gerry. Better forearmed. It may not happen, any new entrants may decide the status quo is ideal, but I just wouldn’t bet on it.

  3. Here is some additional food for thought: Cash flow.

    All your information is good, and what to charge could simply be summed up a “Billable Hour.” I’ll be very forthright with how I would do it in order to serve as an example.

    Our billable hour is $225. This means for that each hearing professional (we have eight), we need to generate $225 per hour on average to cover all of our expenses (i.e utilities, wages, rent, and all the other stuff you indicated). This means that if we have a 1-hour staff meeting, that’s $1,800 we won’t be earning.

    So, let’s say we unbundle completely and charge invoice cost plus a fee for services rendered in the first 30 day trial period. We normally spend about 3-4 hours for fitting and follow-ups in that time frame, so the fitting fee would be $675 – $900 whether monaural or binaural. Our current actual margins are completely bundled, with labor free for the life of the products, and therefore the fitting fee effectively ranges from $850 – $2,100 per aid, depending on technology level ($1,500 average).

    My point in bringing this up is that if you have a business used to a bundled system, then you better have very good cash flow if you are going to convert to unbundled. Using the figures outlined above, and assuming the simple math of 50 binaural “average” fittings in one month (for a practice as large as ours), the margin for unbundled goes from $75,000 to as low as $33,750–more than a 50% decrease.

    Then you charge $225 per hour (maybe with a $75 minimum for 15m) on a fee-for-service basis. Patients will have to get accustomed to this, and your previous patients may be a little shocked by it and have difficulty converting. This being the case, you may need a transition period, where previously fit patients still get free services but new fittings are unbundled. During this transition period, is may take as much as a year for your revenue from the unbundled payors to catch up. This means, since your cash flow will be lower, you better have as much as $500,000 in savings to cover expenses until the transition is completed.

    I honestly think the big push for unbundling is being fueled by the manufacturers. Think about it. At my office, good quality, entry-level digital aids retail for $1,200 each, high-end for nearly $4,000 each. If I unbundled, the up-front amount the patient pays would be reduced to $925 – $2,300 each, making the retail price very attractive to the patient and, as a result, selling more high-end products–something the manufacturers would love us to do. The problem after the fact, however, is that we have to hope that the rest of our income with still come in from the patients responsible enough to seek our follow-up services AND be willing to pay for it.

Let me know what you think