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June 01, 2020

Business as un-usual

Veterinary practices find their way in a pandemic economy
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With the number of human COVID-19 cases and deaths continuing to rise in the United States at press time in early May, some states were already planning on easing strict shelter-in-place measures.

The Trump administration, over the objections of public health officials, issued guidelines in April for governors to take a phased approach to reopening their states.

Such efforts are due in part to the financial troubles that millions of Americans are experiencing as a result of furloughs, layoffs, and shuttered businesses.

As Mississippi Gov. Tate Reeves told Fox News in an April 19 interview, “We can’t wait until there’s a cure for this. … We have serious mental health issues going on in this country right now, and we also have a serious economic crisis going on in this country right now.”

 Chart: "V" Scenario Likely
The best scenario for recovery of the U.S. economy in a post–COVID-19 world is depicted as a V-shaped graph, with a sharp decline in economic activity and a quick recovery. In the U-shaped model, the economy declines, remains depressed for a time, then recovers. The worst scenario is an L-shaped graph, with economic activity declining and not recovering to its previous level.

The numbers

The overall impact to the veterinary industry is an open question, although bits of economic data gathered from practices across the country are shedding some light on the issue.

Industry analyst VetSuccess has been tracking the daily impact of COVID-19 at more than 2,500 practices nationwide. The company reported the year-over-year loss of revenue and invoices for the second week of April was less profound than in previous weeks, showing what appears to be a leveling off at a decrease in the 10% to 15% range.

Smaller hospitals—those with less than $1.5 million in annual revenue—are outperforming larger practices. Notably, practices in Texas, Louisiana, Alabama, and Arizona all experienced, on average, year-over-year growth.

Year-over-year daily average revenue per practice was down 8% nationwide, compared with 12% the first week of April. Revenue at larger practices was down 12%, compared with 2% at smaller practices. Not including home-delivery data, pharmacy revenue was up 5%, whereas revenue for over-the-counter medications and for diets was down 10%, and revenue for professional services was down 10%.

Year-over-year daily average invoices per practice were down 13% nationwide, compared with 16% the previous week. Larger practices were down 15%, compared with 17.5% the previous week. Smaller practices were down 5.5%, compared with 11% the previous week. The top three states with the biggest change in invoices year over year were Connecticut, down 28%; Massachusetts, down 26%; and Maryland, down 25%.

Which will it be?

Speaking during an April 22 webinar, the AVMA’s chief economist, Matthew Salois, PhD, referenced a Harvard Business Review article laying out three potential recovery scenarios for the U.S. economy, from best- to worst-case scenario.

The first and most preferable scenario is depicted as a V-shaped graph indicating a sharp decline in economic activity followed by a quick recovery. The least desirable, Great Depression model is the L-shaped graph showing economic activity declining and not recovering to its previous level.

“Obviously, this is not what you want to happen, and we need to make sure that the right actions and decisions are made to prevent that happening to our economy,” Dr. Salois said.

Between those two scenarios is the U-shaped model, which looks a lot how the Great Recession of the late 2000s played out, when the economy declined, remained depressed for a time, then recovered.

“This is more like a blow to the kneecaps,” Dr. Salois explained. “It hurts. You heal, but not without some sustained injury. There is some economic loss and productivity declines, and some practices won’t survive.

“My hope is the veterinary profession is somewhere between the V and U models. I don’t think the worst-case scenario is necessarily the most probabilistic scenario, but I do think we’ve got to take the appropriate actions to ensure that we have the quickest, most painless recovery possible.”

Chart: "U" Scenario Plausible
 Chart: "L" Scenario Unlikely

Relief for small businesses

In late April, Congress sought to soften the blow to the U.S. economy with a $484 billion package containing $370 billion for Small Business Administration loan programs, including the new Paycheck Protection Program.

The bill, passed first by the Senate on April 21 and two days later by the House, also included $75 billion to support hospitals and $25 billion for coronavirus testing.

The PPP was created by the Coronavirus Aid, Relief, and Economic Security Act to allow small businesses to apply for low-interest, private loans to cover their payrolls and certain other costs. The program quickly exhausted its initial $349 billion allocation, however, and the SBA stopped accepting applications on April 16.

Of the latest $370 billion appropriation for SBA loans, the package provides $310 billion for the PPP, of which $60 billion is set aside for smaller institutions as defined in the bill, and $60 billion for the SBA Emergency Injury Disaster Loans, with $50 billion directed toward EIDL loans and $10 billion to support EIDL’s forgivable cash grants of up to $10,000.

The AVMA website offers information on COVID-19 legislation and relief programs, with additional information about these loan programs for small businesses and how to apply.