NCVEI leader: Increase value when raising fees

Published on September 15, 2009
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 To be successful, private veterinary practices must not only provide great service to clients but also must be operated using basic financial concepts, particularly in this stormy economy.

National Commission on Veterinary Economic Issues (NCVEI) logoThat was the message from Dr. Karen E. Felsted, chief executive officer of the National Commission on Veterinary Economic Issues, who gave a talk July 11 titled "NCVEI: Trends—Are We Weathering the Economy?" at the AVMA Annual Convention.

Discussing the impact of the recession on the veterinary profession is complicated, Dr. Felsted said.

"While veterinarians do provide much-needed services, their success and profitability also depend on how well the practice is run and if it uses best practices in financial matters," said the former small animal practitioner and certified public accountant.

A look at data from mostly small animal practices from 2007 and 2008 collected by the NCVEI Economy Tracker revealed that revenue had grown by a mean of 4 percent, the number of transactions had decreased by 1 percent, and the mean transaction charge had increased by 5 percent.

Most increases in revenue have come from greater transaction charges, whether increases in fees or the number of services provided to clients, Dr. Felsted said.

That information corroborates statistics from the American Animal Hospital Association that show from 2003 to 2005, transactions decreased by 2.69 percent while average transaction charges increased by 17.77 percent. The period from 2005 to 2007 reflected similar results, with transactions growing by a mere 0.11 percent while average transaction costs grew by 10.75 percent.

A similar trend was found when comparing 286 fee changes from 2004 to 2006. In that time, 76 percent of fees increased above the rate of inflation whereas only 20 percent decreased. From 2006 to 2008, of 472 fee changes, only 63 percent of fees increased above the rate of inflation whereas 37 percent decreased.

"From 2004 to 2006, prices went up a lot and then (the increases flattened out a bit) after that. They held steady, but they didn't go down, either," Dr. Felsted said.

In summary, as revenue goes up and transactions remain flat, what drives revenue growth is the mean transaction cost. Why the number of transactions is flat or declining remains unclear, particularly as the pet population has grown about 17 percent from 2001 to 2006, and the total number of pets visiting a veterinarian at least once should be up 16 percent. Dr. Felsted posited that the problem could be because of an increase in the number of small animal veterinarians, a change in vaccination recommendations, or a decline in total visits as people cut back in their expenses. In any case, Dr. Felsted questioned the sustainability of continued large fee increases.

"Real economic growth must come from better medical care, growth in clients, improved productivity, and (improved) efficiency. Costs resulting from lack of efficiency and productivity are simply being passed on to clients," Dr. Felsted said.

According to the AVMA-Pfizer Business Practices Study, 62 percent of practice owners don't use financial concepts to manage their businesses. Those who do, make more money, the study showed. Owners of practices that reported low use of financial concepts earned approximately $75,000 a year, compared with owners of practices that reported high use and brought in about $122,000 a year.

"Raising fees is easy, and it needed to happen," Dr. Felsted said, later adding, "but that appears to now be the most significant force in our increasing earnings. We raised fees a lot, but we haven't done a better job of improving our business practices."