Veterinary economics a priority in 2014
The AVMA has set its sights on strengthening the economic viability of the profession in 2014. Speeches by Association leaders and staff outlined related strategic initiatives during the 2014 AVMA Veterinary Leadership Conference, Jan. 9-12 in Chicago.
Governance reform will also continue to be a priority for the AVMA. That was made apparent during a facilitated discussion held with the House of Delegates.
The HOD took on foreign veterinary school accreditation (see story) along with AVMA membership requirements (see story) and homeopathy (see story) during its regular winter session.
Meanwhile, 85 future and emerging leaders had a chance to network and attend sessions about building critical leadership skills.
In all, 538 veterinary professionals, emerging leaders, association leaders, and others attended the conference.
A lesson in economics
For the past few years, the AVMA has been laying the groundwork necessary to allow it to pursue solutions to economic issues facing the veterinary profession, one of the Association’s strategic goals.
The AVMA Veterinary Economics Division was created in August 2011 and set to work on its first major project—the U.S. Veterinary Workforce Study. The intent was to conduct an economic analysis of the current and future supply of, and demand for, veterinarians and veterinary services in the United States.
Released April 23, 2013, the workforce report said approximately 12.5 percent of veterinary services in the United States went unused in 2012, that is, the demand for veterinary services in 2012 was sufficient to fully employ just 78,950 of the 90,200 veterinarians currently working in clinical and nonclinical settings, resulting in an excess capacity of services equal to the labor of 11,250 full-time veterinarians. Study results further projected that the nation’s veterinary services capacity is likely to be underutilized by 11 to 14 percent through 2025.
Michael Dicks, PhD, director of the economics division, further explained the results in his Jan. 11 talk before the HOD. He started with “a quick economics lesson” on the basics of supply and demand. In his veterinary example, the supply curve represents the quantity of services that each practicing veterinarian would be willing to provide at various prices. The demand curve represents the quantity of services that consumers are willing to purchase at various prices.
“If we have the right amount of services being provided that is just equivalent to the amount of services being demanded, we would have equilibrium, but that never really occurs in any market. There’s always more or less production than demanded at a price that will clear the market,” Dr. Dicks said.
Causes of excess capacity
He then explained the three major factors that have caused excess capacity in the veterinary profession in the past five years.
First, the U.S. economy has seen a 7.5 percent reduction in gross domestic product since 2008 because of the Great Recession.
“That represents a 7.5 percent reduction in your business. That means every consumer is less willing to spend for services because of less income, so there’s less demand,” Dr. Dicks said.
Second, in the past 10 to 15 years, prices for veterinary services have been increasing, even above trend, or faster than the per capita increase for all other services, including human health care services. Dr. Dicks said now, veterinarians have saturated demand at those prices. And because prices are above trend, there’s a gap between the quantity of services veterinarians are willing to provide at a certain price and the quantity of those services demanded by consumers at that price.
Third, while the number of U.S. veterinary students fluctuates over time, that figure has been increasing above trend since the 2005-2006 academic year. Just in the past five years, the total number of veterinary students has gone up by about 4.4 percent. And a recent Association of American Veterinary Medical Colleges survey indicated enrollment among U.S. veterinary schools is expected to increase by 6 to 8 percent, or 150 to 200 students, over the next three years.
“What do we do, and which do we work on first? Everyone said less new veterinarians, but I wondered why new veterinarians didn’t say we needed less old veterinarians,” Dr. Dicks said, smiling.
Using a graph, he showed the importance of the various economic influences on the profession. Lost demand from the recession has likely contributed the greatest impact on veterinary practices, he said.
“If you would spend money on solving the excess capacity problem, it would be demand that I’d go for. Most of the money we’re spending out of (the AVMA) reserves will look at how to grow demand,” he said.
Feedback wanted
The AVMA Veterinary Economics Division and the Veterinary Economics Strategy Committee have been working on producing more economic data for the profession.
The economics committee’s research priorities were approved by the Executive Board this past July. As a result, three studies by the AVMA Veterinary Economics Division will start up in 2014. They are as follows:
- An elasticity study will determine the effects of the price of veterinary services and customer disposable income on the demand for veterinary services.
- An employment study will look at how many veterinarians have been unemployed or underemployed and for how long in addition to whether their status is temporary or permanent and why.
- A capacity study will determine the difference in characteristics between veterinary practices operating at excess capacity and those operating at full capacity.
To piece together a clearer economic picture, Dr. Dicks says it’s up to AVMA members to make that happen.
“There are a lot of data in this profession, but not a lot that have been collected systematically. There’s only one good source of data, and it’s you. So when we send a survey out, we need good feedback. I need to see some real numbers. We need the best data so we can have specific measures,” he said. “You have two big roles. You have to give me data—I’ll work with it to develop useful tools and information—and then you have to use it. I’m going to do my job, and I hope, then, that you’ll do your job.”
Other 2014 economic-related tactics involve the AVMA Early Career Development Committee’s Personal Financial Planning Packet, a budgeting tool for recent graduates to manage personal finance and debt. It is scheduled for launch early this year.
Later in 2014, financial guidelines will be created for specific types of practice, for location, and according to gross sales.
Further, the AVMA Veterinary Workforce Summit, held this past October, is being seen as an annual event.
Smarter investments
“If we are not good businesspeople, we are not going to survive. It’s critical to our livelihood and financial health,” said AVMA Treasurer Barbara Schmidt in her Jan. 11 semiannual report to the HOD.
Dr. Schmidt noted in her talk that the AVMA has been working to improve its own financial status. For the past five years, the Association has been building its reserves. As a result, the AVMA has seen an increase in total reserves of $12 million in that time.
The AVMA Executive Board and its Budget and Financial Review Committee also created and adopted an investment policy in 2013. As part of that, the board agreed to hire Bernstein Global Wealth Management as its new investment adviser “that will leverage every dollar invested to work for our Association and for our members,” Dr. Schmidt said.
Since mid-October 2013, the Association has seen a $1.4 million return on its investments simply by moving assets from a more conservative bond portfolio to one that has more stocks. With the market being favorable, that has benefited the AVMA and positions it for the future, she said.
Dr. Schmidt gave credit to Dr. Dicks and John Nocera, AVMA chief financial officer, for their financial guidance and expertise.
“I have learned so much between these two guys. They are going to lead us into the future, and you better hang on,” she said.
Other speakers
The American Veterinary Medical Foundation, too, has made great strides in its financial status in recent years.
Dr. Richard P. Streett, AVMF chair, told the House that the Foundation has gone from an income of $700,000 in 2008 to $8 million in 2013. He also mentioned that with the $2 million deposit the AVMF received from the Auxiliary to the AVMA in July to create the Auxiliary Legacy Endowed Scholarship Program, the AVMF could start to award the initial student scholarships by the end of 2014.
“You can see what a difference the last five years have made. On the horizon, we’re not going to stop. We’ll continue on with the AVMA family. The AVMF will update its strategic plan in 2015. In 2014, we will work hand in hand with the Partners for Healthy Pets on strategy and the future of the campaign,” Dr. Streett said.
Other speakers who addressed the House were AVMA Group Health & Life Insurance Trust CEO Libby Wallace (see story), candidates for AVMA president and vice president (see story), and AVMA President Clark K. Fobian. He made remarks supporting the Association’s governance reform efforts and foreign veterinary school accreditation.
For more information about the AVMA Veterinary Economics Division, click here.
For more information about the work the AVMA is doing to strengthen the economics of the profession, click here.
Related JAVMA content:
Service surplus (June 1, 2013)
AVMA board OKs additional economics research (Sept. 1, 2013)