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2010 CVMA Convention: Scientific Presentations nd 62conventionCVMA CLINICTitle T ofrac SectionK TEAM Best Medicine Practices – Timely Topics A Successful Career, A Balanced Life L A M PANION ANI PANION Lessons from the Recession M Karen E. Felsted, CPA, MS, DVM, CVPM CO The recession has made it clear to owners and managers of In May, 2009 the QuickPoll focused on veterinary practices in the US that an increased focus on good clients. The NCVEI asked: Has your business practices is critical for increased financial success. Data practice seen a change in the payment INE from the National Commission on Veterinary Economic Issues options used by clients in the last six indicated total revenue growth of about 4% in US companion animal EQU practices from 2007 to 2008 and flat growth from 2008 to 2009. months? Users responded as follows: (These are average figures—about 1/3 of the practices did not • No 26% do as well as this and another 1/3 did better—there was a wide range of performance.) To put this in perspective, the average • Yes, more pet insurance used 1% growth rate had ranged from 11-13% for several years prior to • Yes, more medical payment plans used 12% 2007. Transactions were down, on average, by 1% from 2007 to 2008 but an increase in the average transaction charge of about • Yes, more A/R or held checks 27% 5% bolstered revenue growth. A similar pattern was seen in 2009. It is clear that practices are going to have to work much harder • One or more of the above 34% ovine B than before to maintain revenue growth and improve profitability. Both practice owners and clients are clearly more anxious about the future than ever before as evidenced by some While the recession is at the front of of the responses to the NCVEI’s monthly QuickPolls. In March, 2009, the NCVEI asked: Do you think your revenue everyone’s mind, other underlying for 2009 will be? Users responded as follows: trends also clearly indicate the need for improved business practices. • Greater than 2008 30% ER Student debt is a critical issue in the US and is also putting pressure H T • About the same as 2008 32% on practice owners. The average debt of a 2009 graduate of a O US veterinary college was $129,976. Approximate 89% of those • A little less than 2008 29% graduating from veterinary school had student debt and 90% of • A lot less than 2008 9% the debt was incurred while in veterinary school. About 32% of the 2009 graduates had debt in excess of $150,000, 11% have debt in excess of $200,000, and some in excess of $250,000. The average M private practice starting salary for 2009 graduates was $65,185 EA resulting in a mean debt to earnings ratio of 1.99. A traditional rule K T of thumb for borrowing to finance an education is that no more rac than the first year’s salary should be borrowed (i.e. a 1:1 ratio.) T INIC CL CVMA SCIENTIFIC PRESENTATIONS 382 DR. KAREN E. FELSTED A SUccessfUL career , A BALANCED LIFE More debt of any kind reduces young veterinarians’ options and What are the implications of these changes? increased debt means they have to look more carefully at their • Fees are a big component of the increase in future plans and make more intelligent choices. The practices they revenue and ATC over the last few years choose to work in will have to give them the ability to make more money than in the past. This problem belongs to anyone who is • Fee increases are likely part of the reason for going to need a young veterinarian in the future. While employers the decline in visits to veterinarians L are not solely responsible for solving this problem, salaries must A M improve and employers will have to provide a practice environment • Real economic growth must come from better medical care, in which associates can be more productive and be paid more. growth in client numbers and improved productivity & efficiency It is also clear that much of the revenue growth in vet- PANION ANI PANION erinary medicine has come from fee increases. 76% of M So what’s the answer? Results from the AVMA-Pfizer Business the fees included in the AAHA Fee Reference increased CO Practices Study released in 2003 indicated that 62% of practice above the rate of inflation from 2004 to 2006. owners don’t use financial concepts to manage their businesses. Those that do make almost 2/3 again as much as those who don’t. Veterinarians should and must continue to increase their earnings Some of the most significant changes included: but it can’t be through simply raising fees. They must focus on better business practices such as communicating value to clients so • Hospitalization--50% of the fees had statistically significant INE increases of 7-16% above the rate of inflation. that they accept more recommendations and improving efficiency and productivity so that the practice becomes more profitable. EQU • Anesthesia--67% of the fees had statistically significant Doing well in the future is largely about going back to basics. There increases of 11-24% above the rate of inflation. aren’t any magical new management techniques that will allow • Treatment procedures--72% of the fees had statistically practices to make a lot more money with little effort. Instead, significant increases of 6-22% above the rate of inflation. practices need to focus on fully implementing sound operational systems and management practices. “Fully implementing” is the • Surgery--60% of the fees had statistically significant key—many practices already focus to some extent on critical increases of 8-54% above the rate of inflation and areas such as client communication and capturing charges but many surgeries had increases of >20%. few really do it well. 99% accuracy isn’t good enough. According ovine to an unnamed source on the internet, 99% accuracy means: B Fees did not increase quite so dramatically from 2006 to 2008 but they didn’t decline either. And during these same • 16,000 pieces of mail lost per hour periods, the average practice saw a decline in new clients per • 20,000 incorrect drug prescriptions filled per year full-time-equivalent veterinarian from 271 in 2001 to 203 in 2007, per the American Animal Hospital Association. Active • 500 incorrect surgical operations performed each week clients also declined from 1299 in 2001 to 1141 in 2007. • 2 unsafe landings at O’Hare International Airport each day A study published in JAVMA in 2008 ( “An Examination of US ER Consumer Pet Related and Veterinary Service Expenditures, H • 50 newborn babies dropped at birth by doctors each day T 1980-2005”) indicated that while inflation adjusted expen- O ditures on pet products & veterinary services increased, • 22,000 checks deducted from the wrong accounts each hour the % of total households with veterinary service expendi- tures remained constant. Translated into practical terms, this means that the % of households spending money on veterinary services than is declining. Data from the AVMA M indicates the number of owned pets has increased 16% EA from 2001 to 2006 and yet the % of pets visiting the vet- K T erinarian at least annually has declined. Data from AAHA rac indicates transaction growth in the average practice is flat. T INIC CL CVMA SCIENTIFIC PRESENTATIONS 383 DR. KAREN E. FELSTED A SUccessfUL career , A BALANCED LIFE While these figures may not be entirely accurate given the Communicating value to clients is one of the most important nature of what you read on the internet, the point is critical. areas practices must focus on going forward and is the Even small numbers of errors can have catastrophic effects. cornerstone to the success of other changes. In order for clients to accept the practice’s pet care recommendations, Most practices need improvement in multiple areas; they must first understand them and value them more than it’s uncommon to see a practice that has just one huge the other things they might choose to spend money on. problem, which, if addressed, will fix their profitabil- L A ity issues. Common revenue problems include: M Why is this particularly important now? • Inconsistent fee increases • Clients are increasingly nervous spenders • Excessive discounting • Fewer pet owners are visiting veterinarians; ANI PANION M • Missed charges transactions are flat in many practices CO • Inefficient use of doctors and staff (low production) • It is an increasingly competitive marketplace » Minimum wage employees • Veterinary care is complicated and difficult to understand » Too many part-time employees • Hospital visits can be frightening INE » Poor hiring and training • People take in information in different ways EQU » Little correlation between compensation and production Before you can communicate well, it is first critical to understand • Inefficient use of building how clients judge value. An article in the Harvard Business Review • Focus on less profitable services studied the communication of value at the Mayo Clinic. The Mayo Clinic happens to do this extremely well while spending • Poor location little money on traditional forms of advertising. The authors noted that “When a company’s offerings are hard to judge, • Poor client service customers look for subtle indicators of quality.” Translated, this ovine • Adequate scheduling and doctor availability means that clients can’t judge the quality of the medicine but B will look at the aspects of your practice that they CAN under- • Owner compliance with doctor recommendations stand to make a judgment about the medicine. This may not make logical sense but it’s the way it works.
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