A price list full of dollars: But not much sense
Think of price lists like the background bad guys in old westerns; you never hear much about them until you have to and they’re generally content to hide in the shadows.
When you do get a closer look, you realize the costume designer has dressed them all up nearly identical, right down to the dirt on their cheeks. Which one is Villain #1 or Villain #2 or Villain #3? It’s hard to tell without digging into the details of the credits for more information.
Let’s do exactly that and dig into price lists; maybe we can figure out how to choose the right one for your practice—that is, if there really is much of a choice.
What is a price list?
A price list is an understanding negotiated between a vendor and another entity. Vendors come to agreements with:
These arrangements establish a set of wholesale rates that vendors offer to any provider who signs up.
Why is choosing the right price list important?
Ideally, price lists negotiated by buying groups or alliances can help providers manage cost of goods by giving them opportunities to lower wholesale pricing on various materials offered by a vendor.
In a world where cost of goods is going up but vision reimbursements aren’t necessarily increasing with it, maintaining control of cost of goods for your private pay patients is essential. If you’re an out-of-network provider, then price lists are even more valuable. They expand your margins on the materials in specific frame lines or lens collections and help you grow your bottom line.
What is your cost of goods?
Cost of goods is any expense directly tied to the product in your inventory. Anytime you purchase frames for your optical or lenses for patients, those expenses contribute to your overall cost of goods.
For most ECPs, eyewear comprises both the bulk of their cost of goods and most of their revenue. That means the materials you sell offer you the greatest opportunity to manage your cost of goods. Your bottom line largely depends on the wholesale and list prices of materials in your inventory. You often hear the adage suggesting that you control what you can control. The balance between cost of goods and revenue is well within your control with the right approach.
That’s why price lists are so important. They’re the counterweight on the cost end; keeping wholesale expenses lower so you can expand the margin between cost of goods and what you make from list prices. Ideally, they help ECPs tamp down some of their largest expenses without affecting revenue.
Price lists offer more than wholesale pricing advantages
Price lists can offer advantages beyond helping ECPs manage costs, though. For example, let’s say you’re hoping to add a new frame line to your inventory. It’s in demand among a subset of your patients. They want it badly enough that you should carry these frames. However, you don’t want too many units; the frames aren’t popular with all your patients, just some of them.
The vendor will ask you to purchase a minimum amount. That minimum may be more than you’re willing to purchase. But price lists negotiated by buying groups, alliances or other entities can lower the minimum inventory you’re required to purchase.
In addition, price lists might offer billing benefits. For example, the vendor may have a billing term of 30 days. But the price list may include a negotiated billing term of 60 days.
Extended billing terms and lower minimum purchase quantities give practices additional flexibility in managing their inventory. In addition to lower wholesale prices, that extra wiggle room in how you maintain your inventory helps you retain practice autonomy.
But about that whole choosing thing…
We’ve established that price lists can help make cost of goods and inventory more manageable. But how do you choose the right price list for your practice?
Well, that’s where it gets complicated. Sure, there are going to be small differences from one buying-group or alliance price list to the next. But in the big picture, there really isn’t much variation. All of them offer the same general set of benefits and mandate the same sort of hoop jumping to qualify.
Nodding like you understand all these crazy price list minimums, tiers and requirements.
Choice among price lists is an illusion
Ultimately, there’s just not that much choice among price lists. If you look at three separate price lists negotiated with a vendor there may be subtle differences between each, but ultimately the pros and cons will be similar. The same sort of wholesale discounts. The same extended billing term. The same reduced purchasing requirements. The same complex set of rules for qualifying for certain pricing advantages or discounts. The same potential for practice rebates that may or may not ever actually materialize.
What exactly are we trying to say? If you think you have an actual choice when choosing a price list, think again. Like rebate rewards and out-of-network benefits, price lists can be misleading.
You don’t have much choice from one to the other. And oftentimes the best benefits come at the highest tiers. You’ll only reap the rewards if you’re dispensing the volume of inventory only the busiest practices move. If you’re not located in the heart of Manhattan or Los Angeles, good luck reaching the tiers with the best benefits.
And even if you are attaining some of the best price list discounts, are they worth it? If you’re receiving a 12% discount on frames that wholesale for $60, then you’re getting $7 back. You can make the same $7 just by increasing the list price of the frames. Relative to the list price that $7 is barely noticeable.
What can ECPs do to find the right price lists for their practices?
Here’s the problem: As much as price lists don’t really offer choice and come with a litany of requirements, they’re still an effective way to balance cost of goods against revenue.
So what do you do? How do you find a price list that helps you keep cost of goods under control without taking away practice independence? As of right now, there’s not a great answer.
Price lists as they are today chip away at practice independence by making you buy minimum quantities to have access to price lists or sell certain amounts to reach tiered benefits. They’re asking you to make a decision: Full practice freedom or better cost margins?
But, does it really have to be a choice?