Put ProSal out to pasture

Put ProSal out to pasture

Economic realities and flawed assumptions mean trouble for production-based compensation models in veterinary practice.
source-image
Nov 01, 2014

Throughout the last six or so years of recession, tough times have forced many practices to reassess the systems they use to calculate doctor pay. From the mid-1980s through the financial cataclysm of 2008 and 2009, the ProSal paradigm for compensating veterinary practitioners—production-based pay with a guaranteed salary base—appeared to be the answer. It offered a way for practice owners to motivate “worker bee” doctors, encouraging them to maximize top-line clinic revenue. It also provided associates with a way to give themselves a pay raise, all day every day, while continuing to practice good veterinary medicine.
But fast-forward to today’s tough economic climate. Those of us who specialize in veterinary law have been seeing the wheels start to fall off of the ProSal compensation wagon.
 

Flawed assumptions


In the 1980s, when I bought my first animal hospital, it was relatively uncommon to custom-tailor bonuses to individual associate doctors. Part of the reason was that in order to figure out which docs were hitting the ball and which were slacking, you had to have a computerized practice. In those days, computers were new (heck, we used to check bad credit card numbers by referring to a paper “hot sheet” mailed to us by our credit bureau every week). Just forget about calculating Dr. Johnson’s average client transaction to three decimal places.


Eventually computerized practice accounting became the norm and we could all confirm our suspicions about which associates were hard workers and who simply worked hard at looking busy. And off we all went down the path of motivating our less-productive professional employees through percentage-based financial reward. This compensation system worked pretty well for me and most other practice owners who used it. Unfortunately, it had never been tested under circumstances where the following assumptions could no longer be taken as articles of faith:

>>> Clients’ disposable income would rise indefinitely. When associates first signed on for commission-based pay, they pretty much figured they would be able to “percent” their way into beating their established base salary virtually every year. Unfortunately, ProSal works for the employed doctor only when his or her clients have money to spend, aren’t losing jobs and don’t have to worry about losing their homes to foreclosure.

>>> The supply of veterinarians would remain relatively fixed and regionally uniform. The number of veterinary graduates vying for available clients has risen in bad economic times. And it’s worse in the parts of the country where veterinarians like to seek jobs: those warm, sunny places that attract young, trendy clients.

>>> Pet owners would always seek more and better veterinary care. They definitely want good care, but when the wolf is at the door, clients often stop seeking it. Indeed, starting in 2008, many did. The droves of clients who would get the best for their pets “at any cost” a decade earlier became more cost-conscious. And it’s really tough for an employed veterinarian to beat his base salary when his ProSal percentage is multiplied by a perpetually falling production figure.

>>> Veterinary specialization would raise practitioner income as in the human medical world. In an economically battered America, particularly in regions and states that once depended on manufacturing jobs, the ability of veterinary specialists to make an outsized income commensurate with their training has suffered broadly. Many specialty practices don’t participate in the sorts of bidding wars to attract oncologists and surgeons the way they once did. The high-end caseload just doesn’t expand well in a moribund economy.
 

The contract impact: A real world example


Frequently in business, when the going gets tough, the tough get going to their lawyer’s office. In the veterinary realm, ProSal compensation schemes have led many doctors to attempt to alter or sidestep their employment contracts. Here’s why.


Associate veterinarians take certain risks when they accept a new job, and that goes for new graduates as well as seasoned specialists. Young Dr. Ned Newbie and Dr. Nancy Neurosurgeon both move to a new city to work, enroll their children in the best available schools, purchase cars on time and buy houses with a mortgage. They each sign noncompete agreements in exchange for an anticipated stable income stream.


Dr. Ned Newbie takes his ProSal job and doesn’t think about negotiating a good, solid base salary because it’s obvious to him from the start that 20 percent of the gross revenue he’s certain he can generate will be much, much more than the skimpy base he’s agreed to at the time of hire. But when unemployment strikes his region, he actually begins earning just his base. And suddenly, meeting expenses becomes difficult: private school for Jimmy is out, student loans have to be deferred, and the “starter home” he bought becomes simply “home.” Ned wishes he had a better base salary but feels fortunate that his base can’t be reduced under his contract.


Dr. Nancy Neurosurgeon lives in the same town. When the local economy tanks, she and the other surgeons at her specialty practice start competing for cases. Fewer high-end procedures are being scheduled and all the docs at the practice are paid—you guessed it—a percentage of their production. But Nancy has a substantial base salary to fall back on, right? Sort of.


She neglected to closely read her contract when she signed it. Naturally she assumed she would be raking in plenty of dough under the “20 percent of produced revenue” clause, so she never considered the base salary to be a big deal. But now, on closer inspection, she realizes that her ProSal formula amounts to something of a gift that keeps on giving.


According to her contract, for all the years when her “20 percent of produced revenue” falls below her base salary, she accumulates a “negative balance” under the ProSal compensation formula. So even after the economy (hopefully) allows her to exceed her base salary through augmented revenue generation, she “owes” that positive excess back to her employer until the cumulative excess erases the several years of negative balances.
 

A better way


As you can see, it’s better to get the pay issue right in the initial contract. Before agreeing to any compensation formula, consider this:


>>> Is the “base” in the contract a real base or can a bad year result in you taking home less than the stated base salary amount? If your base salary cannot be reduced in your ProSal pay arrangement, make sure the base amount is enough to meet your needs if you end up having an insufficient number of cases or transactions to avail yourself of the benefits of ProSal.


>>> However, if the security of a set salary is more important to you than the potential for making more money with a ProSal compensation package, push for a generous (or at least fair) base salary figure that cannot be reduced. And maybe just pass on ProSal.


>>> If you choose ProSal but the possibility exists of “production deficits” (where you’re penalized for failing to “earn your base salary”),  be sure to look extra closely at the noncompetition terms under the contract. Such a pay formula can backfire, leaving you with years of income below what you had anticipated, so you might be forced by economic realities to leave that job. Such a decision will be far less painful if your noncompete will allow you to take some other job without having to move to Timbuktu.

I could not disagree with you more

Dear Mr. Allen,
I have read your article “Put ProSal out to pasture” and I could not disagree with you more. It is time that people really understand ProSal and allow all associate veterinarians to reap the benefits of it. As the “author” of the ProSal compensation method, it amazes me how many people think they are paying associates using the ProSal method of compensation when, in fact, they are not. It appears that you have two major misunderstandings considering ProSal. First, there is never a negative carryover with ProSal. At the end of the year, if the associate is not paid the guaranteed base, they would be owed the difference. Period. There is no carry over. The associate cannot be paid less than the guaranteed base; they can only be paid more.
Second, you seem to think that associates are getting a lower guaranteed base salary when they are paid on ProSal. This is not the intent of ProSal. Associates should receive a fair guaranteed base that is the same as they would have been paid if they were paid on straight salary. We have negotiated many compensation packages for associates. Typically, if a veterinarian had been employed previously, we use their previous year’s salary as a base, or more. If the veterinarian had not been previously employed, we will normally use the regional average to determine the base salary.
I truly believe ProSal is, by far, the best way to pay associate veterinarians. They can’t make any less than their guaranteed base; they can only be paid more using the ProSal method. When I teach at veterinary schools, every year I talk with the students about the various methods of compensation. Students see the value of ProSal. I have even had graduates come back and relate to current students how well ProSal has worked for them.
In your article, you also wrote that, in your opinion, ProSal worked well when the economy was doing well, but now with the economy is faltering, you don’t feel it is as effective. My firm and I personally work with many veterinary practices on a daily basis and it is my opinion is that veterinary medicine is doing quite well and has been doing well for quite some time. Most every practice we work with has had a significant increase in both their gross income and their net income year over year.
You seem to indicate that ProSal has caused a rash of people to seek out legal advice. If this is the case, I apologize. The last thing I would want is to be responsible for more money leaving our profession and going to the legal profession.
It is unfortunate that the name ProSal is so often invoked to describe a method of compensation that is actually not the ProSal method of compensation that we designed. ProSal should provide a fair guaranteed base (not a low ball one) that is paid without any negative carryover. Associates paid on ProSal receive fair compensation based on the services they provide they provide to their clients. ProSal promotes optimum patient care by giving the associate veterinarian an incentive to provide a full-service approach to their clients.
Mark Opperman, CVPM
President, VMC, Inc.
Evergreen Colorado

I agree

I completely agree with the author’s assessment of the Pro Sal formula in today’s economic climate. In describing the economic factors that have led to financial decline of our veterinary profession, however, I feel that one of the most important contributors to this current situation failed to be mentioned....which is the fact that the veterinary profession went from recommending annual vaccinations to recommending EVERY THIRD YEAR vaccinations for most, instead. This was a profession wide medical decision that unfortunately led to financial consequences. Combined with the current trend to vaccinate humans (especially children) less as well, this then led to a HUGE decline in clients bringing in their pets annually for physical exams and preventative care, and many limiting their visits to Rabies vaccinations so that they were only seen once every 3 years. An offshoot of this was that many animals were never presented until their illness or condition were so advanced, the owner could not afford the diagnostic work-up or treatment now required and, in turn, this led to an unnecessary increase in euthanasia as a default option. Had an annual visit still been the norm, many of these animals would have been diagnosed in early stages, the owners could have had more opportunity to be educated for early symptoms, and problems could have been averted or resolved for less overall cost to the owner and led to a better outcome for the pet. This huge drop in patient visits combined with the economic recession and flat recovery rate are the biggest factors for the decline in practice revenue, and the inability for veterinarians - owners and associates alike – as well as their staff, to be paid a more deserving income. With revenues falling or rising at a rate that cannot keep up with costs and inflation, it became impossible to increase salaries in an appropriate manner without having to lay people off. The other factors that were mentioned in the article obviously are also contributing to the overall poor veterinary practice financial atmosphere. As a profession, it seems that we are treading water and not doing ourselves any favors by continuing to encourage additional veterinary schools to pump out more students that will face little choice in employment and only be guaranteed the burden of huge financial debt and perpetuating the dilemma of a profession that continues to be underpaid from the kennel worker to the owner of the practice.
Dr Wing

ProSal - Cash is King

Cash Is King!?
Pay for performance has been hyped promoted as the gospel of pay methods by the vast majority of practice consultants for the last 45 yrs plus. Much has been said in this article….my particular favorite is “it makes the associate think like an owner” Horse dung….it makes the associate greedy….not worried about the long term success of the practice….only the cash flow to them. Associate come and go. Heck, owners come and go…some are not into building for 20 to 45yrs plus…sometimes cash is really king!
However, few have the guts to come back and tell the truth about what it really accomplishes.
First and foremost the culture of the practice becomes cut thought…doctors arguing over who did what, changing numbers on computer line items…jumping into rooms where the client really wanted to see the other doctor.
And the most disastrous of all…..it creates loading clients and it is the “yellow brick road” to malpractice.
It is and was always stupid.
Manage from an Ethos of quality medicine and service…..practice the best medicine you know how, charge for what you do, be honest and fair and the rest takes care of itself….it always does.
When reading or listening to consultants always remember one thing “Avoid the current Wisdom”!