How to price medications in a cash-pay practice
Should you make money on medications?
As we connect with clinicians launching, running, and growing their own cash-pay practices, a question that often comes up is how to price compounded medications. This includes:
Should I take a margin on medications? If so, how much of a margin?
Should I bundle the price of medications with my services?
Our recommendation (usually) is to price medications as a separate charge, ideally at cost (or as close as possible).
Below, we elaborate on our rationale.
Why you shouldn’t make money on medications
1. This decision may represent a “vote for your mission”
Many clinicians starting cash-pay practices are passionate about delivering high-quality, accessible, longitudinal care to folks in need. Often, they feel frustrated by misaligned incentives and disappointed in the quality of care they’re able to deliver in the existing fee-for-service, insurance-based system.
Pricing medications at cost and transparently best aligns incentives between you and your patients. This prevents you from having the financial incentive to prescribe medications that are not necessary or order more expensive medications.
Although in an ideal world, clinicians would be immune to incentives, numerous studies show that financial carrots and sticks do impact clinical decision-making. For example, a recent study in the Journal of Public Economics found that clinicians receiving free meals and other financial compensation from drug firms increase their prescribing of those drugs right after payment receipt (Carey et al., 2021).
By being compensated for the care you’re providing and not for medications, labs, supplements, and so on, you can ensure that your future self will continue to prioritize delivering high-quality, appropriate, patient-centric care.
2. This provides a superior patient experience
Beyond incentive alignment, offering medications at cost also increases your value proposition, helps you differentiate yourself, and creates trust among patients.
As interest in cash-pay practices grows among providers, patients have increasing choice for where to receive this type of care. As such, differentiation and value proposition become even more important. By giving patients access to medications at cost when competitors might not be doing so, you enhance the value you’re bringing to patients and help set yourself apart.
Furthermore, this approach may help build trust, which is critical for both patient outcomes and your practice success. In today’s healthcare landscape, patients are unfortunately often skeptical of their providers. In fact, trust in providers has taken a nosedive from 72% in April 2020 to 40% in January 2024 (Perlis et al., 2024). By being transparent about medication prices and making it clear that you have no financial gain from a patient taking a certain drug, they can feel more confident in your treatment plan. This will not only increase their satisfaction with your services, but also their adherence and perceived impact, which plays a significant role in symptom resolution.
3. This may protect your reputation
After the fraudulent behavior and bad press surrounding direct-to-consumer companies like Done and Cerebral, many providers moving into a cash-pay context want to safeguard themselves from ever becoming or appearing to be “pill mills.”
Bundling your professional value and the medication’s value or making meaningful financial return from medications alone may create reputation and regulatory risk.
4. This makes it clear that you offer value separate from medication access
Pricing your services and the medication separately can also be advantageous from the perspective of retaining patients.
If the two are priced together, and patients conflate the value of the two, they may be less loyal and more likely to churn. For example, they may be more likely to leave your practice if they no longer tolerate, want, or need the medication, or if they learn of a way to get the medications at lower cost. Ideally, patients should see the value of your practice as your clinical support and the relationship they have built with you.
4. This may reduce operational complexity
Bundling medications and services may create additional operational complexity as it assumes both expenses will occur hand-in-hand and on a set cadence.
For example, let’s say you have a monthly fee that covers both your services and the medication. What happens if a patient doesn’t need the medication one month because their dose lasts longer than expected or they move to a medication that isn’t delivered on a monthly cadence? Do you refund them for the price of the medication? Do you charge them one-off when they need their next medication?
Why you should make money of medications (sort of)
There are some cases in which it does make sense to add a margin on the cost of the medication or even bundle your services with the medication price. Keep reading for a few reasons on why.
1. You should be compensated for your work!
To be clear, offering medications at cost does not mean you should not be compensated for the work you are doing. Depending on the practice model, medication ordering can be a significant overhead from either a time spent or financial perspective.
For example, given compounding pharmacy offer discounts exclusive to providers, many clinics will order and pay for medications on behalf of their patients, either for direct shipment to patients or to store in the office. In this case, the clinic is often taking on either a cashflow risk (if they invoice the patient after the clinics pay) or an extra step in the workflow (if they invoice the patient before the clinic pays).
In this case, we recommend either increasing your professional fee and continuing to offer the medication at cost, or employing a “cost-plus” model (similar to The Mark Cuban Cost Plus Drug Company), where you transparently disclose the price of the medication and the percentage markup to cover this additional work.
2. Bundled prices might be more palatable for some patients
You know your patients best. Some patients actually prefer to have a bundled price because they only get charged once. If this is true for your patients, we recommend being explicit that you are including the medication price at cost.
3. In some cases, bundled prices might reduce complexity
If you have complete line of sight to the medication ordering cadence, bundling both charges can actually reduce your operational complexity because you can be sure, each month, that you’ll have the payment from the patient to fund their medication. However, it’s worth building in logic to ensure that the bundled price increases as the dose increases.
3. Keep in mind any agreements with compounding pharmacies
In some cases, compounding pharmacies may ask you to sign an agreement that you will not share pricing with anyone who does not have an account. It is possible that offering your medications transparently at cost would violate these terms. Review your contract, and err on the side of caution—let the compounding pharmacy know that you’re planning on taking this approach and discuss creative solutions that work for them and for you.
Good luck!
Ultimately, there’s no single “right” answer for how to price medications, and you should trust your intuition on what you think will work for you and your practice. These decisions aren’t written in stone and you can always change your mind, especially as the market evolves.
If there’s support that we can provide as you are thinking through these decisions, don’t hesitate to get in touch!