Monday, July 28, 2008

An ALDI sort of health care

In the town where I live is a branch of a German-owned, discount grocery store chain. It's ALDI. ALDI takes on interesting strategies to fulfill a simple goal: delivering high quality goods at discount prices. The end result is a quirky little grocery store that fulfills it's goal nicely. The quality of their goods are generally above average and their prices are low, usually lower than Walmart.

So, how does a business achieve rock-bottom, low prices without compromising the quality of their product? In ALDI's case, they focus on this goal and cut out normal grocery store functions that don't lend themselves to fulfilling the goal. The result is a store with less widespread appeal than a Walmart or Krogers, but with lower prices and a devoted customer base.

A person entering our location of ALDI will spot several departures from normal grocery store setups. For example, the customer has to supply a quarter to get a cart that is chained to the front of the store. They get their quarter back when they drop their cart off. That eliminates the expense of lost and stolen carts and the need for employees to gather them up. The customer saves money.

ALDI doesn't supply bags. The customer can buy bags from them or bring their own. And of course, ALDI has no baggers. Thus, ALDI saves paying additional employees. The customer does a little work but saves money.

I don't think I've ever seen more than two employees at any given time at our ALDI. But with a small store and no responsibilities other than checking people out, they are able to push people through at a good rate. I would imagine that ALDI has a much lower employee to customer ratio than most grocery stores. That may sound like a bad thing when considering customer service, but it's a lot less paychecks to pay and those savings are passed on to the customers.

ALDI carries a limited assortment of goods. They buy privately and in bulk and ship out to their stores. Their are able to beat national prices and end up with an impressive (and interesting) assortment of products. Of course their German products are good. Their produce is fresh and beautiful and their breads above average. Customers learn the nuances of their products, find their favorites, and get hooked.

So, ALDI may not be for everyone. But they fulfill their goal: high quality goods at low prices. They reach that goal by cutting out the peripheral services. They may not appeal to customers who like to be waited upon, but for bargain shoppers and those on tight budgets they can't be beat.

Now, we've said it many times on Free Market Physician, but the national health crisis (if such it can be called) can be boiled down to high prices. America is unhappy with the price of health care. For those of us who are business oriented, why not make our goal the ALDI goal: to provide high quality service at the lowest price possible?

To do so, I would like to suggest the ALDI method of price slashing: eliminate peripheral services. Doing so may make us quirky and limit some of the general appeal of our practices, but it will fulfill the crucial need to make health care affordable. What health care features could we slash?

Our favorite feature to slash at FMP is working with insurance companies. In some clinics, employees assigned to insurance billing outnumber physicians. I recently spoke with physicians at a practice who said that they could save up to 30% of their cost by accepting cash only. (Imagine the devoted customer base you would have if you delivered your services at 30% below other physicians' costs.) Patients who have insurance can pay at the office and later contact their insurance companies and be personally reimbursed. It's a hassle for some patients, but saves significant money for all of them.

Of course there are all sorts of other features that could do with some slashing. The goal is high quality service at rock-bottom prices. The current alternative is allowing the government to take control of the industry. So, what can we do to make our services more affordable? We'd love to hear your slashing ideas- post them in the comment box or send them to us at

Rusty Scalpel

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