The economic state of small animal practice

Speakers at AAHA meeting address recession, mergers, layoffs, profit margins
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During the recent recession, small animal practice as a whole has survived rather than thrived.

Revenues increased 1.4 percent overall from 2008 to 2009 in a sample of 2,012 practices, according to a new report from the American Animal Hospital Association.

AAHA meeting attendees
Attendees at the recent AAHA meeting discuss staffing issues during the session on "Workforce Strategies for Challenging Times."

The first AAHA State of the Industry Report was the subject of an address by the association's new executive director, Dr. Michael T. Cavanaugh, during the recent AAHA meeting. Many other conference sessions tackled topics relevant to the current economics of small animal practice—including consolidation, downsizing, and profit margins.

State of the industry

"The companion animal veterinary practice community is not recession-proof but for the most part has not been as severely impacted by the economic downturn as have other sectors of the economy," according to the AAHA report.

The report, appearing March 23 in the online version of the association's Trends magazine, draws on a study of practices across the continental United States. The authors are Dr. John W. Albers, who recently retired as AAHA executive director and started a consulting company, and Dr. Cavanaugh.

Of the practices in the study, 68 percent had an increase in revenues from 2008 to 2009, but 32 percent had a decrease. The average transaction charge for all practices increased 0.8 percent, to $109.20. As for patient visits, 51 percent of practices had an increase and 49 percent had a decrease.

The study found, furthermore, that many dog and cat owners have not been purchasing a full year's supply of heartworm preventives or flea and tick products.

"There are clearly two opportunities to provide increased levels of care and to grow revenue: patient visits and compliance," Drs. Albers and Cavanaugh write. "As the economy improves, practices need to be positioned to urge clients to return for the care that may have been missed during the past year or two."

The authors add that the pet patients in the study included more than twice as many dogs as cats.

"Even modest increases in the number of feline patient visits would add substantially to the companion animal practice economy," Drs. Albers and Cavanaugh write.

The authors note that AAHA anticipates producing the State of the Industry Report on an annual basis.

Too many practices?

During the AAHA meeting, a four-member panel made a case in favor of consolidation of neighboring small animal practices.

Dr. Thomas R. Kendall, director of Arden Animal Hospital in Sacramento, Calif., described how he merged two practices with his own and built a new clinic to house the conglomeration. Dr. Hal H. Taylor Jr. of Healthy Pets of Ohio, a Columbus-area group of four hospitals, recounted how he expanded his father's practice by building new clinics that share computer systems and business staff.

Dr. Richard A. Goebel of Simmons Veterinary Practice Sales and Appraisals said the United States has about 20,000 small animal practices, and about 40 percent are solo practices. Solo practices can be efficient and profitable, he said, but many of them do not make enough profit to be valuable on the market when the owner wants to sell.

"When I think about consolidation, I think about efficiencies that come in two ways. One is really the efficiency of systems, and that's things like Hal has done," Dr. Goebel said. "And then the other is the concept that Tom was talking about, and that is merging two practices under one roof. The efficiencies that you realize there, they can be dramatic."

Philip R. Homsey II, JD, who represents veterinarians in practice sales, believes that the veterinary industry has 40 percent too much capacity in the number of practices. He also thinks that fewer new veterinary graduates want to become practice owners.

Infographic: 51 percent of small animal practices had an increase in patient visits from 2008 to 2009, and 49 percent had a decrease, according to an AAHA report.Similarly, Dr. Kendall has found that many veterinary students are seeking a position at a practice with multiple veterinarians—partly to have the option of working part time.

Practice management

"Workforce Strategies for Challenging Times" was the topic of another session at the AAHA meeting. The speaker was Marla Bradley, chief executive officer of Bradley/Lambert, a provider of corporate training.

Bradley said veterinary medicine has not escaped from layoffs and hiring freezes during the current economic downturn. She said communication is key to downsizing strategies as well as plans for growth.

"It's almost impossible to overcommunicate during times of change," she said. "Yet, what do we do? We often communicate less because we're busy, because maybe we're uncomfortable with some of those discussions that we need to have, maybe we don't like some of the messages we have to put out."

During layoffs, Bradley advised being clear about why the practice has to downsize and how remaining employees will fit into the new organization.

Profitability was the focus of a presentation by Dr. Karen E. Felsted, CEO of the National Commission on Veterinary Economic Issues.

Dr. Felsted noted that the NCVEI and VetPartners, an association of practice consultants, recently have developed a profitability estimator for practices, available on the NCVEI Web site.

"Increased profit margin is going to give you increased cash flow to invest in your practice to practice better medicine, to do the things that you want to do personally, and ultimately it's going to drive practice value," she said. "Most owners don't have any idea what their profit margin is, and many of them are unhappily surprised when they find out. But this is a very correctible condition."

Dr. Felsted emphasized the importance of increased productivity and thriftiness as ways to address revenue and expense problems, instead of simply increasing fees.

Along with the profitability estimator, the NCVEI Web site offers a variety of benchmarking tools and communications aids for practices—plus an economy tracker to help measure the impact of the recession on veterinary medicine.