Soft labor includes all of the time spent in the support and development of the staff that does not include client service
or patient care. Soft labor includes such items as staff selection, staff training, performance appraisal, continuing education
and staff meetings.
In veterinary medicine, the time spent performing hard labor is supported by an equal amount of soft labor. In other words,
they are said to exist in a 1:1 ratio.
For example, if a technician takes three minutes to read a record, obtain a syringe full of saline, flush a catheter, discard
the syringe and make a notation in the record; there is an assumption that three minutes of soft labor time must be accounted
for as well. The calculation would look like:
- minutes hard labor + 3 minutes soft labor = 6 minutes total labor; 6 minutes of labor = 11/410 hour
If the technician is paid $10/hour the labor cost equals $1 (11/410 x $10).
If staff labor is budgeted at 20 percent of revenue, then the revenue generated should equal:
$1 divided by .20 = $5
Therefore, the proper fee for the three minutes the technician spends flushing a catheter is $5.
A small bump in technician wages from $10 to $12 per hour results in a bump from $5 to $6 for this simple three-minute procedure.
Once you have performed this calculation based on the average rate of pay for your technical staff, you can rebuild your fee
schedule knowing what fee you need to set per minute of procedure time ($2 per minute in the above example). If two technicians
are required to complete a task (one performing restraint) the proper charge becomes $4 per minute.
Doctors the sameThe same calculations can be done for doctor time as well.
If a doctor wants to work a 40-hour week and be compensated at $65,000 per year, his or her hard labor needs to be billed
out at approximately $5.20 per minute. When was the last time you charged a client $52 for a 10-minute progress report phone
call on a hospitalized patient?
If you are at a general practice and your clients get sticker shock at the emergency or specialty practice, it is because
those practices do not have all of the front end fat to subsidize their back room procedures, so they must charge properly
or go out of business. Likewise, if you work at a specialty or emergency practice and you are not as profitable as you would
like to be, could it be because the person establishing your fees is using a general practice frame of reference?
Not 'a first'Veterinary medicine is not the first industry to undergo this type of transition.
Just as our clients are veterinary industry consumers, we are automotive industry consumers. Twenty years ago you went to
the car dealer to buy a new car and went to the gas station for all of your service needs. A typical car dealership generates
75 percent of its net profit from new car sales, 15 percent from the service department and 10 percent from its parts department.
Today, gas stations are convenience stores; you go to them for milk and lottery tickets. You go to Jiffy Lube if you need
an oil change, you go to Pep Boys for new tires, and you go to Midas for mufflers. You can still go to the car dealership
to buy a new car (or you may even buy one online), but thanks to Consumer Reports and the American Automobile Association
pricing guides, you barely pay a dollar over dealer costs. Thus, car dealerships now net only 5 to 10 percent of their profits
from new car sales and the same 10 percent from their parts department, but their service department now accounts for a whopping
80 to 85 percent of net profits!
Why? Because they have learned to place value on their professional expertise.
The technology that has made it possible for modern cars to get more than 40 miles to the gallon and last 100,000 miles between
tune-ups has also made it impossible for the local garage to stay up-to-date with their sophisticated technology. When your
car hiccups, you need to take it to the dealership for the 15-minute $100 computer diagnostic in order to find out what the
problem is. They know it, so they charge for it! Does anyone have an issue with an automotive technician who has a two-year
college degree charging $100 for a 15-minute computer diagnostic, while a veterinarian with an eight-year degree charges $38
for a 20-minute physical exam/office visit? Could the future of veterinary medicine be letting go of vaccines and the pharmacy
and charging $100 for diagnostic expertise?
Need to planVeterinarians, like all business owners, need to plan.
The easiest tool for facilitating planning is the development of a strategic operating budget.
The strategic component of the budget is the key. Revenue projections are made based on medical policies and compliance.
Once the practice strategies for the upcoming year have been identified, the budget becomes a monthly scorecard for making
sure the desired results are achieved.
Reviewing the fees for the practice and helping to set them at the proper level is one of the many management tasks the budget
helps you through. With a budget in place, you can benchmark each month's results and adjust your strategic plans as needed.
Without a budget, many practices fly blind and rely on luck to make sure they can meet payroll in the winter or have the cash
to handle delayed billings in the summer or fall. Using a budget will help you answer many of the fee questions practices
struggle with daily.