The economic state of specialty practice

Recession leads to decrease in revenues at many specialty practices across the country
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Before the recession, many specialty practices had been booming as a growing subset of pet owners spared no expense on veterinary care. Recently, however, specialty practices appear to have fared worse on average than general practices.

In California, for example, revenues decreased 4.13 percent from 2008 to 2009 for specialty and emergency practices, according to figures from the veterinary consulting firm Gatto McFerson in Santa Monica. At the same time, revenues increased slightly for general practices in the state.

Dr. Marrion performs cataract surgery
Dr. Ruth M. Marrion performs cataract surgery on Baby, a 2-year-old pit bull-type dog, at the North Andover, Mass., location of Intown Veterinary Group. The group operates specialty and general hospitals at four locations in the Boston area.

The economic downturn has led to a slowdown at specialty practices across the country, said leaders of the Veterinary Specialty Practice Alliance and the MOON collaborative of specialty practices—separate groups that each have members from multiple regions. Members of the VSPA and MOON have hopes that the recession has merely been a speed bump for specialty practice.

California indicators

Tom A. McFerson, a partner at Gatto McFerson, said more and more specialty practices had been opening in the years right before the recession.

"It was really the golden age for specialty practices," McFerson said. "They communicated with the clients and were able to get the word out that there are specialists."

Specialty practices also communicated with general practices to encourage case referrals, he said.

McFerson believes specialty practices are losing revenue now for a couple of reasons. Most obviously, specialty and emergency procedures are big-ticket items that some clients cannot afford at the moment. In addition, some general practices are not referring as many cases and are handling emergencies themselves.

Dr. Francis reviews radiographs
Dr. Jason A. Francis reviews radiographs on digital imaging equipment at the Ventura, Calif., location of the Veterinary Medical and Surgical Group. The specialty practice recently opened a new hospital in Orange County, Calif.

During the initial economic meltdown in the fall of 2008, Gatto McFerson started compiling information about revenues at general and specialty practices to keep a finger on the pulse of the situation in California. The informal survey has grown to encompass data from more than 150 practices in the state.

After factoring out price increases, general and specialty practices actually reported decreases in revenues from 2008 to 2009—although the specialty practices still fared worse. General practices in Southern California had an overall decrease in revenue of 1.66 percent, after accounting for price increases, and general practices in Northern California had a decrease of 1.05 percent. Specialty practices throughout the state had a decrease in revenues of 7.31 percent after accounting for price increases.

By the early months of 2010, though, revenues appeared to be stabilizing for general and specialty practices in the survey. McFerson said he is optimistic that specialty practices will fare better this year.

"I think that they will bounce back," McFerson said.

VSPA viewpoint

Members of the VSPA, an alliance of 20 specialty practices, meet twice a year to compare finances and discuss business models. The members operate in markets that do not overlap, so they are not competitors.

Leah Basinais, VSPA president and the chief operations officer for the Veterinary Medical and Surgical Group out of Ventura, Calif., said alliance members have felt the effects of the recession.

Basinais said many general practices are keeping patients longer to try less-expensive treatments before referring the cases to specialty practices, but general practices that work with more-prosperous clients are not reluctant to make referrals. The financial limitations of certain clients become most apparent at emergency practices when the choice is between treatment and euthanasia, she said.

"People come in and they see, 'Gosh, just to get my dog through the night might be $1,000 or something,' and then they don't know what's going to happen after that," Basinais said.

Before the recession, revenues increased for VSPA members almost every year without exception. In 2008, some members began to see decreases in revenue. The alliance is still analyzing data for 2009, but Basinais believes decreases in revenue were more substantial for 2009 than for 2008.

In response to the economic downturn, members of the VSPA have adjusted staffing and taken a variety of other measures.

"We've adjusted doctor contracts. Some have even changed their doctor structure—for example, hiring residents as opposed to adding board-certified specialists to their staffs," Basinais said. "Some places have done layoffs to control payroll costs."

Members of the alliance also have been paying closer attention to inventory management, seeking new bids for medical supplies and fee reductions for credit-card processing, and renegotiating interest rates on leases and loans.

At the same time, some VSPA members have continued with existing plans for expansion. Basinais' group just opened a new hospital in Orange County, Calif., and took over the management of a practice in New York.

Basinais noted that she expects revenues in 2010 for VSPA members to be higher than in 2009 and slightly higher than in 2008.

MOON outlook

Members of MOON, a new collaborative organization of specialty practices, share information on topics such as finances and human resources. The name MOON came from the descriptive phrase Member-Owned Organizational Network; the previous name was the Veterinary Specialty Practice Collaboration Initiative. The current five members have locations in the Boston, Chicago, Denver, San Diego, and San Francisco areas.

Dr. Brian D. Cassell, MOON executive director and a former consultant for specialty practices, said some MOON members have experienced a slowdown because of the recession.

Recently, Dr. Cassell said, pet owners have been less likely to accept referrals and more likely to pursue less-expensive treatments. He cited a case of a dog owner who received a referral for a total hip replacement for the dog but decided on physical rehabilitation instead of surgery.

Dr. Cassell added that the economic downturn has impacted areas of the country at different intervals.

"One hallmark of this recession and its effect on specialty practices is that it's been a rolling blackout economically," he said.

Some specialty practices have had layoffs, while others are seeing more applicants for open positions. Before the recession, conversely, specialty practices were adding services and had waged a bidding war for veterinary specialists.

"They were doing very well in terms of revenue growth," Dr. Cassell said. "Unfortunately, there were quite a few of them that were not doing that well in terms of profitability. However, the excitement of revenue growth tended to mask problems in their profitability or operations."

Members of MOON are seeking to identify the best management techniques for operating specialty practices. The organization has formed 10 councils on subjects ranging from strategic business development to the medical supply chain.

To increase the effectiveness of their information systems, members of the organization are implementing a common platform for human resources data and seeking common platforms for management of clinical and financial data.

Members of MOON maintain a strong commitment to the growth of specialty practice, Dr. Cassell said, even in markets that continue to struggle.

Dr. Cassell believes the economy has stabilized and could improve incrementally in the next one to three years. He said pet owners are still looking for high-level veterinary care when they have the income to spare.

The National Commission on Veterinary Economic Issues offers free benchmarking tools for specialty practices at