Blindly ignoring your veterinary practice fee schedule could hurt you

I was disturbed by recent statistics from the Veterinary Hospital Managers Association (VHMA). Among VHMA member practices, revenue growth for May 2015 was only 2 percent as compared to May 2014. Prior to May, revenue growth ranged from 4.4 percent to 7.1 percent for the first four months of 2015. But more telling is what members told the VHMA about their plans to raise fees in 2015 …

Here's what I find so disturbing. I think the VHMA represents veterinary hospitals with owners and managers really concerned about good practice management. They may not be representative of the profession as a whole, but within this subset, revenue growth was only 2 percent in May and less than 7 percent for the year. What might the average be for the profession? Yet with such limited revenue growth, only 48 percent plan to increase fees on both shopped and non-shopped services.

Are fee increases the only way?

By Denise Tumblin, CPA

While I believe in the value of veterinarians and veterinary care, I worry that the economic climate today doesn't support across-the-board fee increases year after year after year. At some point, I think it's possible a practice could price itself out of business. While it's true that in the past, practices often undervalued their services and what clients will pay, I don't think this is the norm anymore.

Practice owners and managers today must look hard to find more efficient, less costly ways to provide the same quality of care, not just continue to raise prices because their costs went up.

Of course, I still recommend that practices raise prices in many cases and not ignore rising costs. I just think it's important to take a multi-step approach to this issue, including looking at third-party payment options, preventive care plans and pet insurance. All of these options may not work for for all practices, but it's important to consciously, mindfully consider all the options and determine what's best for your particular practice, culture, clients and community.

Your fee schedule is the lifeblood of your practice. What business stays in business without increasing fees? Your costs are going up. If you don't increase your fees, you cannot (or perhaps, should not) give raises to employees, purchase new equipment or make any facility improvements. Without increasing your fees, your practice won't thrive. You might just barely survive.

Why is it that veterinarians are always so reluctant to raise their fees? I don't think this is the case in other professions. Doctors, dentists and chiropractors don't seem to have the same issue increasing their fees. Personally, I think it has to do with veterinarians' own self-image.

The problem starts at school

When I speak at veterinary schools, I ask students to put a value on their future services and skills. Other professionals (accountants, lawyers, consultants, etc.) charge by the hour, so my question to students is what do they think they will be worth an hour? The response is the same, regardless of the school. I hear the same number: $35 an hour. That's not a misprint. $35 an hour. That's what they feel their services are worth. What does a good accountant make an hour? $300 to $400 an hour. How about a good lawyer? $300 to $500 an hour.

What do veterinarians think they're worth? $35 an hour.

I see similar personal devaluing in my seminars with practicing veterinarians. I ask doctors what their practice charges to hospitalize a 40-pound dog. I then ask if they charge for daily doctor care and what they charge for a comprehensive physical exam. In many cases, veterinarians charge more for a comprehensive physical exam then they do for a patient hospitalized for 24 hours. Many don't charge for daily doctor professional care, yet they examine the patient several times each day. Most everyone will admit this is crazy, but I have been doing this for years and the results haven't changed that much.

There is no question that veterinarians should be proud of themselves and the services they provide. For instance, when a patient comes back in for a medical progress exam and the veterinarian confirms the problem is resolved or getting better, that's a service worth charging for, just the same as when I bring my child to the doctor and they tell me my son is better. That's peace of mind-an answer I needed that I couldn't find out myself. It's what I pay my doctor for and am happy to do so.

I know that some consultants disagree with increasing your fees on an annual basis and some even feel that our fees are already too high. I strongly disagree; I don't think our fees are anywhere close to that glass ceiling.  As long as our expenses go up we need to adjust our fees, just like any other business.  We should also look at other ways of controlling our expenses and give clients options for payment, but that is not going to offset the increase of costs and if we don't increase our fees, we will further reduce our profitability, which we can ill afford to do.

The problem ends with you and your fees

These are my pricing rules to live by:

Consider all your options

By Karen Felsted, CPA, MS, DVM, CVPM

Practices once regularly raised fees at two to three times inflation. That isn't sustainable now. Ample evidence exists to show that clients are concerned enough about the cost of veterinary care to choose not to get care when it becomes too costly. We know sometimes it doesn't matter how much value clients see in our services-they still have to make hard financial choices if costs are beyond their budget. Offering more payment options (insurance, third-party payment plans, monthly preventive-care plans, etc.) and doing a better job of educating pet owners about these choices is essential.

Of course, practices need to deal with rising prices from vendors, and practice owners want a reasonable return on their investment. But costs aren't always rising because of vendor price increases. They may be going up because of practice owners' spending choices. Practice management teams need to look carefully at every dollar spent and decide whether they're getting value for those expenses. Most practices can operate more efficiently without damage to the practice or the client experience.

All businesses have to raise fees periodically and veterinary practices are no different, but focusing on value, reducing expenses and offering payment options can help bring more long-term value to the practice.

> Acknowledge the cost of living increase. In my opinion, a practice's fee schedule needs to be updated once a year-or better yet every six months. Your shopped fees need to be evaluated in comparison with other practices serving a similar clientele. Your in-hospital fees need to be based on your overhead costs per minute, direct costs and return on time to the doctor. Every six months or annually, you need to increase by at least double the cost of living increase. For example, the cost of living increase last year was about 3 percent, so a fee increase of 3 percent every six months (or 6 percent a year) is the minimum increase. If you only increase at the cost of living, you're not gaining ground, you're just holding on.

> Pass on drug cost increases. Your inventory charges should be updated each time you receive an item. If the cost of the item increases, the charge to the client should go up as well. Make sure the percentage markup is stated in the computer and, each time a product is received, the cost of that item should be entered into your practice software.

Veterinarians and their team members are actually more sensitive to fee schedule increases than their clients are.

> Stay calm. When increasing fees, don't make a big deal about it. When you walk into Walmart, you won't see signs saying, “We just increased our fees!” But they do-all the time. If you keep up with your fee schedule, increases won't be that significant and probably won't be noticed. If, by chance, a client should comment on a fee increase, just acknowledge the increase and explain to them that your fees represent the cost of rendering quality care and service. In my opinion, veterinarians and their teams are actually more sensitive to fee schedule increases than their clients are.

Mark Opperman, CVPM, is owner of VMC Inc., a veterinary consulting firm based in Evergreen Colorado.

Denise Tumblin, CPA, is president and owner of Wutchiett Tumblin and Associates, in Columbus, Ohio.

Dr. Karen Felsted is president of PantheraT Veterinary Management Consulting in Dallas, Texas.