Client-fractured dollars

Consumers do fracture their spending. In the telephone industry they buy a land-line service, a wireless service, long-distance services, cable and satellite services and DSL from yet another provider.

The telecom industry's game plan is to get consumers to roll it all back into one bundle, the "unfractured" dollar.

The overhead is very different among all these niches.

The discount businesses must be very astute when building their business plans, eliminating unneeded overhead items without compromising minimum standards of care.

Specialty practices must consider image an important part of their model and strive to exceed minimum standards.

Middle-market practices must find the middle ground, blending services with necessary fixed overhead to provide a reasonable variety.

Business factors

As a first step in setting fees, create a business plan.

• Select the equipment package needed for the selected niche.
• Select the best location for customer access to the facility, including parking and ingress-egress issues.
• Consider the hours for the public to access the services.
• Plan for staffing and anticipated salaries.
• Set up a budget for fixed costs, variables and veterinary salaries.
• Calculate the break-even point.
• Consider space allocation for inpatient and outpatient zones.
• Finally, determine the fees.

For practices already set up, it's a challenge to accomplish these steps retrospectively, especially if inpatient services account for 30 percent of gross revenues and the target is 70 percent.

Changing the ratio

Two major factors are in play: case work and appropriate inpatient fees.

An important element to consider with the 70:30 ratio is the relative penetration of veterinary-service offerings. Practices often overlook many diagnostic opportunities and case work.

But with price adjustments, increased recognition of complex medical and surgical costs, coupled with an increased delivery of inpatient services, a practice can increase its inpatient revenue.

Unlike the human sector where imaging, CT scan and MRI systems often are overused, veterinarians could improve their skills, especially in diagnostic ultrasound.

Ultrasound is an important addition to a veterinarian's daily diagnostics arsenal because it helps him/her visualize disease conditions early on that will require inpatient services — a good situation.

Over a five-year period, a practice can increase inpatient revenues with the current client base to achieve the desired 30:70 outpatient/inpatient ratio.

To flip the equation from 70:30 to 30:70, this illustration applies:

For a practice grossing $1 million, there would be $700,000 from outpatient services and $300,000 from inpatients.

To turn over the ratio, add $1.3 million from inpatient services. This would take the practice to about $2 million, with $700,000 coming from outpatient services and the rest from inpatient services — the desired 30:70 ratio. This is realistic.

The profession's challenge is that inpatient services and skills are more difficult to learn, require added nursing staff and, with production pay now predominant, it can be difficult to change a practice's culture.

We can use surgery time to identify needed inpatient services.

Add up all elective surgery minutes: spays, neuters and dentals.

Now double that number.

Within that client base will be additional, needed elective surgeries. Procedures can be added, such as anal-gland removal, exploratories, oncology and orthopedics.