Criteria for Ancillaries
It is important to identify the ancillaries that “work” for each practice. One of the common errors in practices implementing ancillaries is assuming that because other practices offer certain services that those services are profitable for that practice and will be profitable for other practices. First, in most circumstances, it is almost impossible to know how profitable any ancillary services are for any practice. Unless access to financials are provided and verified, providers have to depend on a third party for the profitability of an ancillary, which is problematic. Vendors have a vested interest in overstating profits to encourage providers to buy or use their products, equipment or services, while providers who offer ancillaries are often very reluctant to either admit they are losing money on an ancillary or encouraging competition by sharing the profitability of an ancillary. It also difficult to compare one practice’s experience to another practice with a different patient base, history and provider(s).
While the return on investment (“ROI”) of an ancillary needs to be determined, each practice needs to determine the criteria of ancillaries that fit or don’t fit into their practice and then apply that criteria to each ancillary considered. Historically, the sole criteria for adding ancillaries in traditional practices has been profitability, as determined by insurance reimbursement. One of the major problems with this criteria, however, was the reliance on insurance companies. New ancillaries seemed to go through a common life cycle: Insurance companies would initially provide strong reimbursement for ancillaries, which would prompt their adoption and expansion. As the ancillary became more common place, insurance companies would significantly decrease reimbursement or determine that the service was now part of routine service or, essentially, bundled into the office visit. This cycle often left practices with payments for equipment that didn’t generate any additional revenue.
In a hybrid practice that offers integrative programs in addition to traditional care, one of the criteria for ancillaries might be that it isn’t covered by insurance, (and isn’t a designed health service). While this means that insurance will not reimburse for the ancillary, it also means that practices can charge patients cash for that ancillary, (because the ancillary is not covered by insurance contracts or CMS regulations). In this scenario, the criteria of not being covered by insurance helps to identify the ancillaries that are more likely to be profitable to a practice.
Two other common criteria that should be considered before moving to an ROI analysis are price and competition. The price of an ancillary should be considered in comparison to the prices already charged by the practice, regardless of how profitable the ancillary might be. The price of an ancillary should ideally “fit” with the existing prices of other services. If an office visit, supplement order, massage treatment, etc., all average $60 to $150, an ancillary that costs significantly more than $150 might not be a good fit. An ancillary that is a price outlier can undermine existing services and
Even an ancillary that isn’t a price outlier runs the risk cannibalize existing services, which is why practices should consider the competition ancillaries will pose to existing services. Adding a massage therapist to a practice with an existing chiropractor may cause the chiropractor to lose business, as existing patients may choose between seeing the massage therapist and chiropractor. Such competition can be offset with increased demand, but practices should be aware that patients often have a finite amount they are willing to spend in a practice, regardless of the services received.