Playing monopoly in the veterinary market

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Playing monopoly in the veterinary market

As more practices are acquired by larger companies, are veterinary consolidators undertaking legal restraint of trade? Let's roll the dice and find out.
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Oct 12, 2018

Are veterinary consolidators flirting with antitrust violations? Let's see ... (Adobe Stock)Several years ago, when the flood of corporate veterinary acquisitions was more of a trickle, I was asked to opine on the possibility that corporate veterinary ownership could run afoul of state and federal laws designed to prohibit restraint of competition in the veterinary health provider space.

The essence of the quandary is this: If a certain region were fully or nearly fully served only by veterinary hospitals owned by one or more large veterinary corporations, would this trigger regulations designed to protect the public from anticompetitive forces like price fixing, restraint of competition and price-gouging?

Looking at the rules of play

After reviewing what I know about federal and state antitrust regulation and doing some research, I formulated a response that I think remains quite valid today, even in light of the virtual bidding war going on among veterinary practice consolidators for new target hospitals.

My conclusion? I just don’t see the government being particularly concerned or prepared to launch any robust new regulatory activity.

My expectation remains that, in an environment where far larger industries are being allowed relatively unfettered merger opportunities (consider Disney’s acquisition of 21st Century Fox), it’s difficult to imagine that regulators will become particularly alarmed by the consolidation of veterinary medical service providers. After all, the veterinary medical space is far smaller than the human health field, in which behemoths such as Kaiser Permanente and Northwell continue to expand and consolidate virtually unchallenged.

And though pet spending has reached about $70 billion this year, veterinary care is only one element of that space. Regulators seem more likely to target higher-profile segments such as OTC products, pet insurance and pet food than the relatively esoteric veterinary field—which many authorities likely think is already adequately policed through practice acts and state veterinary boards.

In fact, my opinion that veterinary practice consolidation is unlikely to pique regulators’ interest has recently been bolstered by personal experience.

First, remember that antitrust laws prohibiting anticompetitive consolidation are designed primarily to protect consumers—the general public—from unreasonable increases in pricing attributable to an artificial reduction in the number of vendors offering a specific product or service.

So far, corporations can pass “Go”

My veterinary-law office just isn’t seeing much in the way of practice roll-ups forcing veterinary prices upward. So far, at least, I haven’t become alarmed that the consolidators purchasing my clients’ clinics are smacking the public with outlandish price increases. I’m getting similar reports from practice sellers (who usually remain employed, at least for a few years, at the clinics they have sold).

Here’s what we are currently observing with respect to the consolidation of veterinary hospitals:

In small markets (metropolitan areas with populations under 100,000), practices that might be interesting to consolidators (those with annual gross revenue of more than $1.5 million) are relatively few in number. When roll-up companies buy clinics in these areas, they often have difficulty staffing their acquisitions, mostly because younger doctors tend to want to migrate to more exciting cities. Because professional employees are a scarce local resource in small cities and towns, I just don’t see the corporations pushing out mom-and-pop clinics.

In medium-sized markets (populations of 100,000 to 1 million), the consolidator hunt for practices to buy is full-on. Sellers are getting multiple offers and it’s getting increasingly difficult for independent veterinarians to purchase existing practices—many are just becoming too expensive. Nonetheless, with corporations large and small competing for a foothold in these markets, the public is often the beneficiary. The acquired practices fall all over each other in an effort to retain and cultivate clients. Small- and medium-sized consolidators want to attract a plethora of new clients so they’ll have a bursting portfolio of customers when they make the move to either sell to a competitor or go public in an initial public offering. As such, I believe it will take a while before veterinary corporations start having a substantial impact on product or service pricing in many midsized metropolitan areas.

Large markets (Houston, Philadelphia, Chicago) are places where I could imagine anticompetitive behavior unfolding as big-money consolidation players squeeze out, merge with or buy out smaller consolidators. But, remember, in big cities the public often expects higher than average prices. Folks probably don’t price shop as aggressively on the North Shore of Long Island as they do in Omaha. So if there is an anticompetitive impact from a mass acquisition of veterinary hospitals, it may not be noticed right away. And when it is noticed, perhaps nobody will be that edgy about it in a world where draft beer goes for $10 a pint. I see the government only marginally concerned with pet care cost increases in big cities. And I see it disinclined to do much about it.

The constant drop in the number of veterinary clinic “entities” providing general and specialty veterinary services to the public is unquestionably placing artificial and substantial downward pressure on the compensation of associate veterinarians.

So, by all appearances, the blinding pace of veterinary practice purchases has not created changes in pricing or service options that would motivate regulators to protect the public. And, to reiterate, the government in its trade-regulatory capacity is not focused on the impact of consolidation on the competitors. In other words, the Federal Trade Commission isn’t designed to protect Circuit City from getting hurt when Best Buy edges it out. Not as long as other players keep prices down and options available.

So who’s pulling the “Go to jail” card?

But just because consolidation in our industry doesn’t yet appear to be seriously harming the consumer—and even though the law isn’t designed to protect small businesses from larger competitors—nobody said veterinary practice roll-ups weren’t hurting one very important subset of the public. In fact, one group is getting hurt a lot.

The constant drop in the number of veterinary clinic “entities” providing general and specialty veterinary services to the public is unquestionably placing artificial and substantial downward pressure on the compensation of associate veterinarians.

I have become convinced that this group is taking a major hit economically from the consolidation trend. I’m convinced because of what I read in the associate contracts I see on a daily basis. Stay tuned … I will describe in detail what this financial impact looks to be next month in part two of this two-part series. I’ll lay out in detail the phenomenon I see emerging as clinic consolidation rapidly moves forward—I call it “the commoditization of the DVM.”

Dr. Christopher J. Allen is president of the Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached via email at [email protected].