As these headlines attest, there is a lot of interest by mental health professionals in creating a cash-only, private pay practice. No more third-party payers – with their rules, discounted rates, and billing requirements.
But the interest in private pay as a market segment is not limited to mental health professionals. Lots of organizations in the health and human service field – those providing consumer care coordination, specialty residential services, supported living services, concierge physicians, specialty hospital services, and more – are contemplating the private pay market sector. The big strategic question for the executive team of any organization considering private pay: what does it take for my organization to compete in the private pay market?
There are two parts to answering this question – there is the math to quantify the niche and then there is the assessment of the strength of competition in the niche.
The math is about the size of the market that is willing and able to pay for services out of pocket. To determine how to conduct this estimate, I reached out to my colleague and OPEN MINDS senior associate, Ken Carr, who explained that when organizations look ahead at demand for cash paying consumers, the standard formula for estimating the “market” for cash paying private practice involves three steps:
- Determine the gross market
- Calculate the effective market
- Estimate the available services in the market
The first step is to understand the gross market of your service line. The gross market for your services is the overall population in your service area (however you define it) that is “appropriate” for your services. To determine this, first define the clinical profile of the appropriate consumer – adolescents with opioid addiction, women with depression, consumers with development disabilities and a mental illness, etc. And, determine the prevalence of those consumers in your service area.
The second step is the effective market – the proportion of those consumers that have enough disposable income to pay privately for services. You may determine that families with a household income over $60,000 can pay privately for outpatient addiction treatment, but household income of $120,000 is needed to pay for specialty residential service. The effective market is the proportion of consumers who need the service and have the ability to pay privately.
Lastly, now that you know the size of the effective market, how many professionals or provider organizations are competing for that effective market? What is the capacity of those services available in your market? The capacity is usually reflected as a percentage of the effective market. At 50%, there is room for something new. At 110%, the market is crowded.
That’s the math. But then there is the strength of the competition. The private pay market is experience-conscious, convenience-conscious, and price-conscious. To compete, you need to know how your competitors rate (in the customer’s mind) in terms of consumer experience, convenience, and price. This information is for market positioning, a critical element of consumer marketing. As my colleagues commented last week in the article How Much Are ‘Amenities’ Worth To Your Consumers?, some consumers will pay out of pocket for some service enhancements. The question for planning – who are those consumers and what will they pay for?
For more on thinking through your strategies for private pay, check out:
- Winning In The Private Pay Market
- Moving Beyond FFS – A Provider Organization Guide For Marketing To Payers & Consumers
- Residential Care ‘Repackaged’
- When 53% of the Market Is Private, Consumer Marketing Matters
- Changing The ‘How’ & The ‘Where’ In Addiction Treatment
- Take Your Marketing Online: Using New Digital Marketing Strategies To Your Advantage
- Succeeding In The Online Ratings Game – Second, You Need A Plan
- Best Practice Online Marketing On A Budget!
- Consumer Marketing In The Age Of Health Care Reform How To Win (Or Lose) Online
- Vanguard Landing Opening Private Pay Residential Community For Adults With Intellectual Disabilities
And for even more on marketing to consumers, join me on September 20 at The 2016 OPEN MINDS Executive Leadership Retreat for the session led by Timothy Snyder, Executive Vice President, OPEN MINDS, “What Is Your Online Marketing Strategy? An Executive Guide To Optimizing Your Website & Social Media Presence.”