Letter to dvm360: Pricing veterinary services is more complicated than article suggests

Letter to dvm360: Pricing veterinary services is more complicated than article suggests

If practice owners held prices at or below inflation, we’d all go broke, reader maintains.
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Oct 05, 2017

I have just read “The pricing struggle” in the September issue of dvm360 by Drs. Rebecca Brake and Michael Dicks of the AVMA’s Economics Division, which concludes that as a profession we should hold our prices at or below the rate of inflation. I have been at the highest levels of corporate veterinary medicine, manufacturing and animal-related not-for-profit work, and recently I have come to own and operate a successful veterinary practice. I believe I speak from an extensive career background that is unique in the profession.

The AVMA’s latest study telling us all about consumer behavior related to price is one-dimensional and ignores most of what faces any owner of a veterinary practice. Let’s first look at just a few items that drive pricing changes. In my practice, Antech has raised my lab prices an average of 6 percent every year for the last 10 years. That goes for every manufacturer and service provider I deal with and in some cases the increase has been far greater.

There has been tremendous consolidation of veterinary distribution and manufacturing companies, which has done nothing but drive cost of goods and services higher at rates far exceeding the rate of inflation. Prescription-related nutritional products from all the manufacturers have reached a point that the $100 bag of dog food is a reality despite bags and cans getting smaller to hide true pricing changes to the consumer. In my practice we have also raised our veterinary and technician wages at least 5 percent per year over the last 10 years to make sure we are competitive in attracting and retaining the best talent we possibly can.

At the same time let’s also look at changes in the marketplace, from “Doc Google” to 1-800 PetMeds and more—including the AVMA president-elect’s practice down the street promoting anesthesia-free dentistry despite the AVMA’s position on the matter.

The very next article in your publication, about the Merck-Unfenced Pet Owner Paths research study on what prompts a pet owner to take various actions, raises more questions about the AVMA study. Just look at cat owners’ preference for seeking information from online sources! The AVMA “experts” would probably say they do that because our prices in veterinary practice have gotten too high. If that is true why are there such stark contrasts between dog owners and cat owners using online resources? Do cat owners value their pets differently than dog owners do? I don’t think so, but I have no study to prove that theory, just years of practical hands-on experience. If cats had diarrhea all over the owners’ favorite rugs rather than in the cat box, I think the differences between cat and dog owners would be far less!

The article also blames practice management experts for telling us all to raise prices and relating that advice to decreasing client visits. Wait just a minute! Those same practice management experts also told us not to raise fees on price-sensitive services that could be easily shopped by consumers. If you followed that advice you wouldn’t even be able to keep up with inflation because there’s no possible way to raise lab prices and other less-shopped service fees to make up for the 60 to 70 percent of prices you’re not increasing due to the shopability of those other services.

The AVMA experts are misguided to draw such simplistic conclusions regarding consumer pricing and practice profitability. With all the outside pricing pressures—including cost of goods and services, employee salaries and benefit costs, just to name a few—how can the AVMA “experts” possibly expect that I hold prices at or below the rate of inflation? That is a recipe for going broke quickly. It is also a recipe for making our veterinary wages less and less over time because we can’t afford to pay living wages to our staff.

In the service industry, the price-value equation is not all about price. You can have the lowest prices and poor client satisfaction and therefore poor value despite your low prices. It is a dynamic marketplace out there, and the AVMA better start looking at all those factors and providing sound recommendations to its membership.

Larry Hawk, DVM, MBA
Auburndale, Massachusetts
AVMA member since 1978

 

Pricing in private practice

Dr. Hawk is right on with his comments. As a small practice owner (generally 2 to 2.5 doctors) for 20+ years, I feel the reality of increased costs of doing business. For the first 10 years of practice we could raise fees three to four percent and grow gross by 5% and add a bit to the bottom line. The past 5 years have seen a dramatic shift to 10-12% increase in gross to keep similar net income. During that same time we have seen a explosion of routine preventative care clinics and low cost spay neuter facilities. So the question becomes how do we continue to increase net incomes - the answer is finding your niche. That niche in our practice is using veterinarians in areas where they succeed and leveraging staff in their areas of strength. Examples would be high volume surgery, internal medicine, specialty procedures, preventative care for the discriminating client, etc. As margins get smaller we have felt compelled to involve our staff in understanding where their compensation is derived and the importance of educating clients, offering services, and providing the utmost in customer service. This topic is tough in vet medicine because most employees (docs and staff)don't work in the field for the high pay and benefits but the closure of 3 practices in the last 18 months in our area drove the point home that "you must generate enough income to justify your position which is generally 5x your daily wage - that is each receptionist, tech, and doctor". Support staff must "close the deal" on the shoppers, emphasize importance of fecals, ear cytologies, appropriate vaccinations, etc. Doctors must diagnosis the disease(s) they are presented and treat and follow-up appropriately. A successful practice must be profitable - unfortunately only the government can function at a deficit year after year (and there time is coming - but that's for another day!)

Author Responds

Dr. Hawk, thank you for taking the time to read and respond to our article on prices of veterinary services.

The AVMA and specifically the Veterinary Economics Division is not (nor does it ever) attempt to place blame for any outcome that the profession has experienced. The role of the economist is first to identify the problem. That veterinary service prices have increased faster than the rate of inflation and this has led to a decline in the demand for veterinary services is measurable and has been observed throughout the profession. This is a problem for the profession. Our only "advise" is to measure the impact of any price increase to insure that total revenues don't decline as a result.

We are certainly aware that costs of goods sold have increased and place veterinary practices in a situation of rising costs and stagnant median household incomes where price increases above inflation will require clients to reduce the number of items in their market basket. Some will choose to reduce or eliminate veterinary services while others will not.

We also did not (due to space constraints) talk about the value/price or value/cost relationships. Raising prices above the rate of inflation is possible without adverse impacts on revenues if the value of services perceived by clients increases. Further, it is possible to maintain value by reducing costs through increased efficiency or substitution of inputs in the practice.

The point of the article was simply to identify a persistent problem in the industry, that raising prices without changing any other components of the practice will reduce the number of clients and/or the amount of services each client purchases. Declining number of clients or services per client increases the costs of all services to all clients as well as reducing revenues and partially offsetting the price increases. There is certainly considerable research to show that this has occurred - some new research along these lines will be presented at the AVMA Veterinary Economic Summit October 22-23.