20Q: Fee for Service in an Audiology Practice Revisited

From the Desk of Gus Mueller

Like other medically-related professions, clinical audiology is an evidence-based practice. And along with this come Best Practice standards and guidelines. As some of you may know, in late 2017 a new organization was formed—the Audiology Practice Standards Organization (APSO). Our guest author this month is Dr. John Coverstone, who is a co-founder of the APSO, and was the inaugural president. While practice standards are critical, it also is important that we get paid appropriately for what we do.  John just happens to be an expert in this area too.

Billing for diagnostic audiology can be complicated, but more or less there are rules in place that cover most situations. The same is not true for the sale of hearing aids, and the provision of services related to hearing aids. Before selling a hearing aid was ethical for audiologists (i.e., pre-1978), audiologists had a “fitting fee” or a “hearing aid evaluation fee.” Once audiologists started selling hearing aids, however, this fee-for-service tended to be absorbed into one larger number, which included the price of the instrument, the evaluation and fitting, and in most cases, follow-up services for the life of the hearing aid—something we would now call “bundling.”

Many have questioned if this bundling procedure for hearing aid sales is good for the profession, as the value of our services is obscured, or at the least, blurred. Other methods are available, which have been shown to be successful in many practices. With the soon-to-be-here OTC hearing aid category, all this becomes even more important. This is why John is joining us this month, to help us sort through our options.  

John A. Coverstone, AuD, is the President and CEO of Sentient Healthcare, an audiology consulting company and parent company of Audiology Ear Care clinic in New Brighton, MN, where he provides clinical and educational audiology services. He has served on the Board of Governors for the American Board of Audiology (ABA), was ABA Chair in 2015, and has served on numerous other national and state boards and committees. He is the 2008 recipient of the Audiology Foundation of America Professional Leadership award, 2012 recipient of Honors of the Academy from the Minnesota Academy of Audiology and recipient of the AAA President’s Award in 2014.

As a “hobby” John co-hosts AudiologyTalk, a monthly podcast for audiologists, and Conversations in Tinnitus, an official podcast for the American Tinnitus Association. While he might be known for his AudiologyTalk, you’ll appreciate his AudiologyWrite in this excellent 20Q article.

Like all professional disciplines, we’re always looking for progress in our field of clinical audiology. But some things move slowly - take audiologic diagnostics, for example. Does the average clinician do more definitive tests today than they did ten years ago? Twenty years ago? And how about hearing aid fittings with adults? Granted, we’ve seen huge improvements in feedback reduction and connectivity, but how about the basic need to improve speech understanding in background noise? Better today than it was ten years ago? Twenty years ago?

Gus Mueller, PhD
Contributing Editor
 

Browse the complete collection of 20Q with Gus Mueller CEU articles at www.audiologyonline.com/20Q

20Q: Fee for Service in an Audiology Practice Revisited 

Learning Outcomes 

After this course, readers will be able to:

• Define 'fee for service' and explain how it differs from the traditional pricing model used historically in most audiology practices.
• Explain how a fee for service model may help audiology practices respond to market forces and consumers' needs.
• Describe considerations for moving to a fee for service model as well as a general process for doing so.

         John Coverstone

1. You published a 20Q article on fee for service back in 2012.  What has changed?

Well, the process of creating fee structures and the reasons for doing so are not really time sensitive. However, what has changed is the landscape of audiology. We are under ever increasing pressure to justify our services and differentiate ourselves from retail locations down the street and online. An increasing number of audiologists are moving to a fee for service model. Since the publication of the original article in 2012, I have heard from dozens of people interested in changing fee strategies and I’m sure there are many times more people who have done so.

2. You mention increasing pressure to justify audiology services. What do you mean by that?

The services of an audiologist are far too frequently underappreciated. In my career, I have witnessed physicians replacing audiologists with technicians, something expressly prohibited by CMS (Centers for Medicare and Medicaid Services) and many private insurance companies under reimbursement guidelines. Hearing instrument dispensers have told me directly that they do the same thing as an audiologist. Now we are seeing online sales with very minimal services provided, retailers entering the hearing aid market, and OTC products coming – all of which have happened because the services we provide are poorly understood and very much underappreciated. Then there is the issue of insurance reimbursement. Yes, insurance companies reimburse poorly for audiology services. They certainly are not going to pay more than necessary. We need to consider that we are sending messages which indicate our service have low value.

3. Those seem to be a lot of things that are largely beyond our control, aren’t they?

Not really. I have watched our profession for more than 20 years now. In my opinion, most of this is our own fault. Ever since audiologists first opted to sell and dispense hearing aids, most have adopted a model of wrapping all fees into the price of the devices. What other profession includes all their fees in the price of a device? Even a big box retailer may include certain fees (installation costs, for instance), but then will tell you what those services are worth so that you have an idea of the great value you are receiving. Many audiologists don’t even do that! It is impossible to stress this enough, but if you don’t charge for - and don’t even recognize the value of your services - they are worth exactly what you are charging: nothing. If your time, expertise and skills do not have a monetary value, then why should the public believe that they are necessary?

4. Fair enough. So, how does a fee for service model help?

First of all, it is up to us to promote the value of our services. No one is going to do it for us. In fact, just the opposite. There are a lot of people making a great deal of money because of our silence on this issue and/or their own propaganda that our services are unnecessary. If we universally charge for our services and promote this to the public, there are a number of positives that will happen: We improve our transparency, which makes us look good and trustworthy; we lessen the cost of our products, which allows us to level the playing field with retail shops; and, it makes a concrete statement of the value or our time, expertise, and skills. Tell yourself what you like, but all Americans have had the mantra of “you get what you pay for” drilled into our consciousness since we were children. Nobody expects to get much value from something when it is free or not acknowledged.

5. The fee for service model is just about charging for your time separately from products, right?

To be honest, yes and no. At its most basic level, the idea of fee for service is about charging for your time. The fee for service process is not strictly about any particular pricing model, however. It is about determining the cost of providing services in order to establish a fee structure that meets the needs and goals of your business. On the pricing side, there are many models. One clinic might decide to be more of a boutique business, where a high level of service is provided to drive value and pricing reflects that. Another clinic might not be in a region which would support that model, and might follow a more value-driven pricing structure instead. The process of developing fee structures allows for both these models. However, it is vital to recognize that each model cannot be implemented effectively unless the owner/manager knows what the cost is of doing business and can set fees appropriately to cover those costs. The alternative is to set fees arbitrarily or according to someone else’s structure and hope for the best. That is no way to run a business.

6. Setting fees arbitrarily? That isn’t truly how people are doing this, is it?

When I entered the profession, I was informed that there were primarily two models for establishing fees. For hearing aids, pricing included everything that was provided – including services – and was recommended to be a straight multiplication of the hearing aid price. A multiplier of 2.5 to 3 was most commonly recommended. This has absolutely no relationship to the services you provide and I would say that it does both you and your patients a disservice. Regarding other services, we are audiologists and can bill insurance for the procedures we perform. Therefore, we must have a fee schedule for those procedures. In the past, I have most commonly heard people recommend either that we charge what insurance companies charge, which is absolutely wrong and actually illegal in some cases, or take the amount we are reimbursed and double it. The second method is simply to make sure we don’t get discounted below the maximum fees the insurance companies will reimburse. However, this also fails to account for anything we are doing in our clinics and bases fees on someone else’s valuation of our time. Who wants to be paid according to what someone else believes our time is worth?

Similarly, the hearing aid pricing model not only fails to recognize our services, but it is completely based on the cost of someone else’s product. It has nothing to do with our time or expertise, or what it costs us to provide those. While that may not meet the strict definition of arbitrary, it truly has nothing to do with the value you provide to your patients. Adopting a fee for service model helps you set fees based on what is actually happening in your clinic.

7. I want to go back to a couple things you stated, but this seems like a good time to talk about the process you keep talking about. What is that process?

That is truly the million dollar question. I have given all-day seminars on this topic without covering everything. However, the basic idea is that you establish the cost of providing each service in your clinic, and assign fees based on that. The idea is that you calculate your total fixed costs and variable costs and use those to determine how much each procedure costs you to provide.

8. What are the fixed costs you describe?

Fixed costs are the things you pay regardless of the amount of services you provide. Those include the space, utilities, payroll, computers, furniture, and such items. Those are usually distributed evenly across the amount of time you provide clinical services. I personally prefer to determine how many hours per day you see patients and how many days per year you are open, then divide the total fixed costs by the number of hours in clinic. I like this calculation because the hours you are in clinic represent your chargeable time. That is the only time you are creating revenue to pay for those costs.

9. It occurs to me that some of those items are recurring costs or may change over time. How do you account for those?

A fixed cost doesn’t necessarily mean that it never changes. It just means that it is not dependent on the amount of business you do. Yes, you will replace your computers every few years and you will probably even use more office supplies if you are busier. If you stay busier, you may need to hire additional office staff and maybe even another audiologist. As they say, these are great problems to have! However, these are costs which generally stay fixed throughout the course of a year and therefore, may be distributed evenly across everything you do. One way to deal with these costs is to amortize everything in your clinic that will eventually need replacement: computer, furniture, coffee maker, television in your waiting room, etc. There is a level of detail that will eventually drive you crazy if you try to keep track of it, though. I consider it acceptable practice to have an amount included in your budget for replacement of smaller items throughout the year. A few hundred dollars may be enough in some cases, a few thousand may be more applicable to your clinic.

Whenever you make large changes, such as hiring personnel, I recommend taking a look at your numbers with that extra expense added in. This is another benefit of this process – it gives you a lot of data to manipulate in order to make business decisions. You can look at trends over time of increasing business, how profitability is affected when major staffing changes are needed, and other such changes to your business. That is all beyond the scope of this discussion, but the data you create during the fee for service analysis phase is very powerful for a business owner.

10. Okay. I think I understand that part. I imagine, however, that variable costs change somehow as we provide clinical services?

Exactly right. After I determine fixed costs, I look at the equipment that is used in providing clinical services. Some people might include that in fixed costs, but the equipment is very procedure-specific. Therefore, I account for this separately. For instance, an audiometer is used for maybe 2-3 different procedures routinely, a tympanometer is used for just a few procedures, and a REM system may be used for just one if it doesn’t include a test box. I encourage people to break down the frequency of tasks which are performed with each piece of equipment. This can be difficult if you haven’t been keeping track of your procedures, but you can begin with an estimate and then track it in the future and adjust. You can then determine the life expectancy of the equipment and divide the cost by how many times you will perform those procedures in that amount of time. For instance, if you don’t like to worry about equipment dying, you might estimate a 5-year length of service for your audiometer. Perhaps you perform 450 audiograms each year, 50 tinnitus assessments and 40 auditory processing evaluations. That is 540 uses (and not all uses are equal, but we need to define the level of detail we are willing to accept). If the device costs $12,000 then we need to recoup $2400 each year, which is $4.44 per use.

Last, we need to also include consumable costs. I use insert earphones 99% of the time, so I need to add the cost of those. If you do some of the audiometer procedures in sound field, you wouldn’t include this cost for those items, but you could amortize the cost of an amplifier and speakers the same way. VRA would be a similar issue. Hopefully, you adopt infection control standards in your clinic and you could include these costs in the same way, although you might find it easier to include such things with fixed costs if you do roughly the same procedures each year and use the same amount of sanitizing and sterilization agents.

11. A while back, you said that fee for service allows for any desired pricing model. Elaborate on that for me.

That is really another side of the ideas we just discussed. Once you have broken down the fixed and variable costs of doing business, you can determine what it costs you to perform each service in your clinic. Once you know that, it is entirely up to you regarding what you do with that information. You can implement a strict fee for service model in which all services are billed individually as they are incurred and products are kept completely separate. You can bundle products and services to whatever extent meets your goals for your business. This is part of the beauty of this process – it gives you the information you need to meet any goal. If you really want to keep bundling services with products, you can do so. At least you will know what those services are costing you and you can promote the value that people are receiving.

12. Are you charging for each service you provide? That is truly the medical model, isn’t it?

In all honesty, it really isn’t. When I opened my first clinic, I was struck by an inequality of charging based on a multiplier of hearing aid costs. I personally felt that it was misleading and even dishonest for me to charge so much more for a higher-level hearing aid (or, conversely, to charge so much less for a lower-level device). Therefore, I implemented a strict fee for service model where I charged for every visit. I quickly discovered a couple things. First, the audiologist who worked with me – a wonderful, caring, and capable colleague – rebelled after a short while because it was a rather infuriating model when it came to treatment decisions. Second, I found that patients would avoid appointments so as not to incur the fee for the office visit. This is not unusual in healthcare – people will often forego appointments if they need to pay a substantial amount for them (more than a co-pay). However, it didn’t fit with my goals for the practice. I wanted my patients receiving hearing aids to be the most successful they could be. That pricing model got in the way. This happens in other areas of healthcare also. When certain visits are really important, they are often included. Surgical follow-up, for instance, is often included in the surgery fees. That is not a time to have people staying away because of an office visit charge and so they make sure that patient is likely to return by including that cost. We can make similar decisions as audiologists.

13. So now I need to ask: What pricing model do you currently use in your clinic?

After deciding that a completely fee for service model wasn’t working, I developed something I have since called “combined fee for service,” for lack of a better term. Some people have called it “partially unbundled.” This model groups certain services as it makes sense. For instance, I have a dispensing package which includes services provided in the initial 90 days post-fitting. Even further, I now have dispensing packages for existing patients and for new patients because patients will typically need more visits when receiving their first hearing aids. I also have long-term care packages, which include everything out to 3 years. Others may want to make the length of time shorter or longer, some may want to include or exclude certain visits or items from different packages. The way services are packaged is completely up to you. I am currently working with some colleagues on developing a concierge model which I think has tremendous promise. I mapped this out about 10 years ago, when my business was brand new. However, I didn’t have the patients at that time to do it effectively. Again, the beauty of this approach is that you have the information you need to do what works for you!

14. Let’s go back to the point you made earlier regarding a given audiologist charging more or less for the same hearing aid services. Can you go into that in more detail?

Of course! This is really what first propelled me to develop the processes I use. I suspect it is the reason many other audiologists have considered fee for service models also. This makes the most sense with an example, so let’s use one.  We won’t use truly realistic numbers, so I think we are safe from the Sherman Anti-Trust police. Let’s say that you have 3-tiers of hearing aid models, even though this approach will work for any range and number of products. The entry-level hearing aid costs you $500, the mid-level costs you $1000, and the top-level costs you $1500. You use a pretty standard 2.5 multiplier, so you sell these for $1250, $2500, and $3750. For a pair, since that is standard clinical practice, your patients are paying $2500, $5000, and $7500. For three different patients, you are earning $1500, $3000, and $4500 for your time and expertise. Are you doing more with a higher technology device that costs more? Yes, you probably are. Are you doing three times as much and are your visits lasting three times as long? I can’t see anyone seriously answering that question with a “yes.” However, flipping this around may make a more compelling argument. If you believe your time is worth $4500 per fitting, then why are you accepting 1/3 the fees for fitting someone with lower technology devices? Are you provide 1/3 the services? Now think about using this method for an economy device which costs you $250. Are you even making enough to keep your doors open? Honestly, looking at it one way sounds as if you are cheating the patient, the other way sounds as if you are cheating yourself. I would propose that the answer lies in middle, with a bit of both. I have surveyed colleagues during seminars on this topic. The difference they reported in fitting visits between lower technology and higher technology fittings was negligible. What, then, are you charging for? A product? If we continue to emphasize only the importance of hearing aids, then we will continue to perpetuate most of the problems we feel are a threat to our profession right now. We will, however, do a great job of promoting our vendors’ products so they can sell them online after we go out of business because no one values our expertise.

15. What about the patient’s perception of this model? I’m a little apprehensive of what patients will say when confronted with multiple fees.

That is completely understandable. First of all, change is difficult. It’s difficult for us and it can be difficult for patients. If patients see a single fee everywhere except your office, you may be worried that they will be suspicious of the difference. Fortunately, though, the fee for service model is truly in the patient’s best interest. That makes it a lot easier for you to justify and for them to accept. I have never had someone leave the clinic because we charge differently than others, but it does start some great conversations. It can allow you to talk about the quality of your care and the time you spend with patients versus other clinics in your area who may try to minimize the services and time they provide. It easily lends itself to a conversation about the value of your time and expertise. Hopefully, you feel those are valuable! I once had a patient say, “Huh! I never realized that so much of the cost was for the services.” She wasn’t stating a negative. On the contrary, she enjoyed understanding for what she was paying. Further, it easily provides you the ability to offer a couple different choices to meet the needs of the patient. That will always be in their best interest. My only caution is that patients are often a bit overwhelmed by the hearing aid selection process anyway. Adding another choice may indeed be a negative. Be sure that you and any other providers fully understand the rationale behind the packages you offer and are ready to make recommendations based on patient needs – just as you would be with the devices themselves.

16. I’ve noticed that you almost deliberately use the term “fee for service” while many people use the term “unbundled.” Is there a difference or is this just semantics?

Really, there isn’t a difference. I’ve seen people split hairs and describe how “fee for service” should be defined as charging for every single procedure separately and “unbundled” is any fee structure in which services are separated from products. When I first started using the term “fee for service,” I only tried to describe the concept that we are charging for our services and not including those in the cost of a device. I have never liked the term “unbundled” simply because I never bundled to begin with. If we are unbundling, then we are taking something that is inherently grouped together and splitting it apart. I don’t see it that way. In many of my seminars, I have used the term “combined fee for service” to describe grouping some of the fees while keeping them separate from products. I’m not wild about that term, but it’s where most people end up for the reasons I described earlier.

17. As you mentioned, I have seen more and more people talking about this. From what we have discussed so far, your procedure for determining a fee schedule seems quite different from others I have seen. Are there different ways of doing this?

There are definitely different methods out there. I will admit that I am probably more comfortable with accounting systems and numbers than many people, as accounting was my first major in college. The level of detail you use in your business analysis will always be directly related to the accuracy of results and the power of the data created in your business decisions. The reason we use accounting systems in our businesses and not just a checkbook is because accounting systems allow us to make business decisions and track things beyond the flow of currency. The same is true for a process such as this. If all you do is choose a number that represents the total revenues you want for the year and divide that number by the number of days/hours/minutes of clinical time, you can indeed decide what a minute of clinic time is worth. However, you have given up a lot of detail about the cost of specific procedures and the ability to project what happens to your business if you make changes. This is particularly true if you are contemplating adding an audiologist or providing services in a new area of audiology. You will probably save time with a simplistic calculation, but you will also compromise your ability to make informed business decisions. You might also end up with certain procedures being undervalued and other being overvalued. This could cause problems with insurance billing, as well as the value of services perceived by patients.

18. I understand what you are saying, but if I am a bit daunted by your description of your procedure, what should I do?

I can understand how someone might be overwhelmed looking at all these numbers and trying to figure out how they fit together. Fortunately, the concepts I use in my business analysis are not anything out of the ordinary for an experienced business manager or accountant in any profession. In fact, they are mostly based on standard and straightforward accounting procedures. I have had many people contact me over the years to talk about the decision to change fee models, to talk through specific concerns with it, or even to get help with the whole process. You could likely contact your accountant and have them help you with this as well.

19. Let’s say I’m convinced. I want to move to a fee for service model – or probably a combined fee for service model. What should I expect and how long will it probably take?

That is another great question and the answer is highly variable. You could theoretically do all this in a week if you were properly motivated and spent the necessary time on it. Of course, there are many changes once you do your analysis and develop your fee structure. What printed materials need to be updated? How long will it take to update the fees in your EMR or other systems? How will this impact current patients and how will you manage patients on different plans during the next 2-3 years? How long will your staff need to get comfortable with this fee structure? What will you do with the patients who have already had a consultation, but come back to a different fee structure? As you can see, there are many decisions to be made beyond doing a business analysis, determining the cost of your procedures, and deciding how to charge for your services.

Ultimately, this is one of the larger business decisions you will make and you should treat it as such. Give yourself a few months – maybe even 6 months - to completely make the change. From the initial business analysis to rolling out a new fee structure and presenting it to patients, could easily take 6 months. Your staff will also appreciate having some time to get comfortable with the new structure. If they aren’t, your patients will notice. They will also notice if you aren’t comfortable with presenting your fees. This is a big hurdle for many audiologists and I suspect is the reason many people haven’t made this change yet. You need to be able to look a patient in the face and tell them your time is valuable and absolutely necessary. Our profession honestly doesn’t do nearly as good a job of promoting the high value of our expertise as other professions, but we need to change this. If you happen to recall the 1990s Stuart Smalley character from Saturday Night Live, perhaps we all should adopt his type of daily affirmation: “I’m good enough, I’m smart enough, and doggone it, I’m worth every penny!”

20. Love the affirmation. Do you think a wholesale change to a fee for service model would truly drive change in audiology?

I think it certainly wouldn’t hurt! The process for analyzing your business and developing a new fee structure doesn’t really change over time. Readers can look to my 2012 20Q article, read other sources or even contact me to learn more about the specifics of the process and the calculations we use. I think the increased professional discussion about fee for service is driven by our desire to be responsive to our patients’ needs. The world is changing and we need to change with it. People want more transparency. Specifically, the Hearing Loss Association of American has recommended that people with hearing loss demand transparency from their audiology clinic. We also want to respond to threats from people who don’t care about the quality of patient care. This certainly isn’t just an audiology problem. If you watch TV and read much of anything, you have seen people trying to circumvent physicians, orthodontists, and others. I do believe that most patients are smart enough to know we aren’t trying to charge for a bunch of unnecessary services. Those who are only focused on the cost of the device may never be our patients anyway. However, if the only message people hear is that the hearing aid is the only answer they need, then we are doing a disservice to both our patients and ourselves. Changing to a fee for service model will require some investment of time and effort, but it truly is a positive move for you, your business, your patients, and the profession.