I'm pretty sure nobody plans on starting a business that isn't profitable. However, in medical transcription, I am pretty sure that a lot of small companies start up with no real plans at all.

Forbes: 10 Least and Most Profitable Businesses [1]

This is an interesting article and, quite frankly, I expected to see medical transcription on the list of least profitable, especially after seeing this lead-in:

As for those bleeding red ink, the reasons are myriad. Low barriers to entry, huge fixed and variable costs, lack of product differentiation, and little or no pricing power with buyers and suppliers are but a few.

Wow - does that describe the medical transcription business, or what?

Maybe the industry isn't big enough to capture Forbes' attention. Or - frightening thought - there are worse businesses to be in. (Actually, the industry doesn’t come up as even a blip in the radar, given the evaluation criteria.)

Low barriers to entry: Got a computer? Check. Internet connection? Check. Telephone? Check. Web site? Maybe - not really necessary. (Note for next business meeting: have nephew who is taking web site class in junior high do this as a class project.) Know how to type? Not really necessary, either. We can get someone in India to do that. (Can't we?) Business license? We need that? That's it! Let's go get some customers!

Low barriers to entry means more competition. And in a niche market like medical transcription, there isn’t much differentiation (see below), so more competition means going head-to-head with competitors. Head-to-head competition is great for the buyers, but it only gives the competitors a headache.

Huge fixed and variable costs: Manual transcription is expensive, although that doesn't stop anyone from trying to make it cheaper. Twenty years ago, I took a seminar for MTSOs and the advice was to maintain the cost of transcription between 50% to 60% of the total line charge. You do the math. If you find a company overseas that will do this for 6 cpl, you have to charge at least 10 cpl. That assumes the work is client ready (or hey - at least good enough) and needs no further review. (Good enough = the client hasn’t complained. Much.) And how’s this for a crazy concept: my notes from that seminar say that if your labor costs are higher, you should charge more to keep them under 60% so you have enough for operating costs and profit margin!

Although the application service providers (ASPs) marketed heavily on the basis that they would eliminate long distance expenses for call-in systems, the reality at this time is that those charges haven't really gone away. VOIP quality is still not reliable enough to use for dictation. But hey - don't let that stop you from trying to use it! After all, the MTs are paid by the line so what difference does it make it if affects their productivity? But that fixed cost ends up being anywhere between 1 and 2 cpl, sometimes only for using the platform, with additional (variable) cost for long distance use.

Lack of product differentiation: Oh yes, this has to be my favorite.

Faster turnaround! Lower prices! Better quality!

Wait - everybody says that.

Some companies are attempting to differentiate with speech recognition but startup costs are high and the ASP platforms require a minimum volume. Which throws the differentiation into two groups: big boys and small fry.

The big boys don’t have any differentiation, just more money to throw at attempting to differentiate. In the end, how much differentiation can there be? It’s transcription. If it isn’t transcription, it’s technology and technology differentiation means innovation. Innovation isn’t just expensive, it takes time to develop and bring to the market. A company can’t differentiate itself enough to get accounts today by selling the benefits of a product that won’t be available for another couple of years. I suppose they could if they wanted to lie to the client (heaven forbid! That doesn’t happen – does it??) and promise the technology as available now. After all, once the contract is signed and the client led down the garden path, they aren’t likely to turn back to negotiate the jungle once again. In this market, there isn’t much differentiation. As I’ve stated in a prior blog – if a facility is considering the three or four largest transcription services, they could pick a name out of a hat and it wouldn’t make much difference.

Small fry tends to differentiate itself on the basis of quality, but that seems to be less and less important in the market as price takes primary consideration. Many services are misguided in attempting to promise/deliver the trinity: price, quality and turnaround. They forget – or choose to ignore - that you can only do two out of three. This isn’t differentiation – it’s business suicide.

Little or no pricing power with buyers and suppliers: When the entire market believes – nay, is told by not only their own industry publications but by the transcription service providers themselves that they can get whatever they want for a low, low price, pricing power is shot all to pieces. I’ve said it for years: transcription service prices will go up when more transcription services refuse to provide services at low rates. Add ambiguous pricing practices and outright fraud that has gone on in the industry for decades into the equation and the squeeze gets even tighter. Transcription service prices will level into a reasonable range when hospitals and clinics educate themselves about transcription billing practices and ambiguous pricing is given the boot it deserves. Unfortunately, because of the low barriers to entry, any fool can start a transcription service; and unfortunately, many fools do. There’s always someone, somewhere who believes they can sign up business for a low, low price and get rich. I wish they’d call me. I’d tell them – for free, even – that nobody cares about revenues if there’s nothing left over for profits. The healthcare financial model “we’re not making any money but we make up for it in volume” hasn’t worked that great for healthcare and it isn’t going to work for medical transcription.

The pricing problem in the industry is more about perception than reality. There’s a group of MTSOs actually honest about billing by the standard du jour (or whatever the contract says) and therefore making very little money because they’re competing with the perception AND with those who say one thing and do another, sometimes without informing anyone but their billing department. If the perception in the market is that 12 cpl is the “top rate” anyone should pay, by any standard, then it’s going to be difficult to get business if you charge more. The MTSO then gets squeezed between the pricing fallacy and the fixed and variable costs to net a very small margin, all the time wondering how companies are raking in huge profits while charging what seems to be less per line.

Imagine buying four new tires – and getting only three. Or paying for a year’s membership – and getting 10 months. What if your employer paid you by the hour, but calculated an hour as 75 minutes? If there isn’t a standard – or you don’t like the current standard – or somehow didn’t understand it even though you based your contract rates on it – no problem! Just write a new standard! [2] It’s the industry equivalent of “dazzle ‘em with bulls***.”

The purpose of VerifiableBilling [3] is to start that education process and hopefully help everyone in the medical transcription industry understand how billing methods can be manipulated and how to add up the numbers to see if perception is anywhere close to reality. It’s like testing for performance-enhancing drugs to get rid of the cheaters and liars so we can level out the playing field.