Developing common sense strategies for fiscal responsibility

One might say that veterinary practice management has always been based on the old adage, "If one thing is certain, it is change". No question about it. The astute veterinary professional cannot afford to lag behind on the knowledge curve. Burgeoning scientific knowledge requires thoughtful attentiveness to practice procedures and protocols. In the for-profit realm of American business, the successful veterinary practice administrator must be equally attentive to how such scientific change can affect practice operations. Driving practice revenues to optimize after-tax profits for reinvestment in technology, people, plant and equipment may be the most essential challenge facing you.

Table 1: Case example - Adult dog

Vaccine immunity duration debates are nothing new. Regardless of your personal stance today, scientific data will continue to accumulate. Hopefully, the confluence of research, vaccine manufacturer label directions, university recommendations and association guidelines will provide a uniform voice and recommendation.

In the meantime, it is apparent that each practice will be left to its own devices of intellect, responsible fiscal management and patient welfare advocacy. Your goal will be to design an evolving and flexible program solidly based on currently available data that allows practice personnel to make intelligent and reasoned recommendations and responses to client query.

A healthy and viable veterinary practice is always based in three significant foundation stones:

• Modern medical and surgical standards and protocols.

• Hospital philosophy and policies supporting staff and client education, effective communication, informed consent and recognition of the human-animal bond.

• Solid financial stewardship that allows the practice the capital means to enhance the lives of its clients, patients, employees, owners and community.

The purpose of this article is to focus on the third of these essential cornerstones: the economic realities of protocol changes, and how medical and surgical standards including reduced frequency of vaccination can be compatible with financial viability; and, yes, even success.

Although this article uses changing vaccine protocols as a platform for discussion, the same ideas can be applied to any rearrangement of services, products and ancillary care. Since change is a constant, you need the tools to manage that change with the least financial trauma to the practice unit. Abrupt change, forced down your throat without forethought or reasoning, can be disastrous.

Preparing for any change

Do not allow the fear of change to lead to your paralysis in making timely, reasoned decisions about how medical standards can evolve while still maintaining the financial stability of the practice. The medical, surgical and patient care standards by which your practice will abide should always be debated first, and on a proactive rather than reactive basis. The ongoing medical director-led discussion of vaccine protocols is only one issue pointing out the fact that a good strategy for evolving ideas of appropriate care do not happen overnight. Rather, such protocol changes are based on constant tweaks and refinements a practice administrator makes in response to repetitive internal debates of current levels of care and information to be relayed to staff and clients.

Decisions based first in finance will cause adverse outcomes. Only you in concert with other practice professional staff can make the conclusion about what will be offered and communicated to clients. The discussion is not a one-time event, but rather one that has continuum over time. Interim conclusions along that continuum form the basis for financial decisions made to drive practice revenues and maintain healthy cash flow.

Strategic, financial planning

A flexible financial planning model becomes an essential component of the continuum. The examples given in this article recognize that practice revenues are basically driven by two significant internal factors: transaction numbers and fee structure. Both change over time. The challenge is devising an empirical approach to deciding how changes in fee structure and transaction numbers relate to the bottom line measurement. Steady or improved service revenue realization becomes the ultimate quantification of a successful strategy.

Table 2: Case example - Adult dog cont'd from previous page

The strategic planning tool featured in this article is nothing more than a mini, specific program for a portion of the practice's revenue generation. For years, we have espoused Program-Driven Budgets1 as a powerful tool for planning revenues. The mini-program featured in this article focuses specifically on vaccine protocol changes for an adult dog wellness program.

The model can be used long-hand, but its most powerful application is through a computer spreadsheet program, such as Microsoft Excel. We have provided an interactive version of the template at the DVM Newsmagazine Web site (www.dvmnewsmagazine.com). We invite readers to explore its flexibility through on-line use. Extrapolate your own practice's situation by a changed vaccine protocol and fee structure.

Significant assumptions

To design this model, we assume that the average patient's life expctancy is 14 years. The template allows for your customized planned vaccine frequency and pricing over a single patient's life.

The starting point for data input is the practice's current fee schedule for services used as part of the regular annual vaccine protocol. You will also need to use your current recommended vaccine and wellness protocol year by year, spanning ages 2 through 14 for a typical canine patient.

The horizontal axis of the model is formatted by ages 2 through 14. The vertical axis is a listing of each specific service typically provided each year as part of the wellness and vaccination program currently in effect. We have listed some typical service descriptions but have also left blank spaces for you to add services used in your own practice. For each service, list the normal fee charged. Spread each service charge out over the years, inputting a fee for each year the service is recommended. Do not make any fee changes for the typical annual increase that would normally be expected in veterinary practice operations. For the purposes of this template, we assume that the annual increase in a fee for service would approximate the discount rate of a present value to the current time. Specifically, a $30 office call today might be $100 14 years in the future, but discounted back to present value, it would still be $30.

Next, total each column of fees charged for vaccines, physical examination and any other typical annual procedures for a healthy patient. Establish a grand total of all 14 years added together. You have now completed step one.

Proposed protocol

In the next template, input a list of all services to be provided under the proposed wellness and core vaccine protocol change. Theoretically, you have already passed through the philosophic debate and come to a conclusion about standard vaccine protocols for the next six-month to one-year span. As always, protocols can be customized to meet the needs of the animal, and also address new scientific data and researched guidelines and manufacturer's support of revaccination timing. The recently published American Animal Hospital Association Canine Task Force Guidelines become a reasonable starting point, summarizing current issues and providing a resource of supporting literature. A veterinary practice can then customize its vaccine guidelines to meet the specific needs of each patient.

Use a highlighter to mark each applicable block for a particular vaccine. Consider staggering or staging vaccines to enhance probability of annual care continuity. An important education communication issue will be that of increasing client appreciation for the importance of annual physical examination.

Using the practice's current fee structure, determine the grand total of revenues realized for an adult canine patient seen for ages 2 through 14. Compare this new tally with the grand total previously computed. Use the exact same fee structure you used in the first model. The computed difference between the two grand totals is the estimated income loss on a per patient basis.

For a real eye-opener of potential revenue loss, research practice records for the most recent 12 months of client activity to determine the estimated number of adult canine patients that were seen for annual vaccinations. Multiply this number times the revenue loss calculated above on an individual patient basis to determine the total potential lost income.

Now drive revenues

Do not get discouraged! Changes in product and service mix have been an ongoing fact of veterinary practice existence. Evolving ideas about vaccine protocols are no different than the introduction of parvo vaccine years ago, recommendations for less frequent heartworm testing more recently, and loss of dermatology income after the introduction of incredibly powerful flea preventatives in the mid-1990s.

First, ask yourself what you can reasonably change in terms of pricing for vaccines and office/wellness examinations. Hopefully, you have already made a conscious decision and taken action to separate the physical examination and annual office call from vaccine pricing. Such segregation gives you the greatest flexibility in moving the practice toward one that is not reliant on vaccine income at much more than 5 percent to 7 percent of gross revenues. Certainly, moving your practice toward 10 percent or less of vaccine-related revenues would be an admirable goal.

Time, knowledge and expertise become your stock in trade, like Abraham Lincoln's. Factors such as potential elevated legal status of animals, extra time for consultation about customized wellness and preventative programs, and requirements of informed consent will all lead to higher office call fees. Challenge yourself to consider an office call fee at least 25 percent higher than what you currently charge as part of the annual wellness strategy. Start tweaking your fee schedule in that direction.

Secondly, consider vaccine pricing. Vaccines still have a high level of perceived value in preventing devastating and potentially lethal diseases. Rather than giving the vaccines away, consider adjusting vaccine prices upward if you have maintained the status quo for the last decade. Many practices have, from the standpoint of being a perceived shopped item among the client base.

Thirdly, evaluate the example computation for a listing of potential additional services. In this issue, Dr. Tom Catanzaro has provided a bulleted list of even more possibilities. What sort of care do you truly believe is centered in the best interest of the animal and should be presented as an option for the client? Are there any services that should be added to what you currently espouse as an annual wellness examination with vaccines? Establish a price and forecast them out over the 14-year span.

Now you are ready to perform your third computation. Total the columns and add across. With a staged strategy for annual re-contact with the patient, a more aggressive pricing stance on office calls and concerted effort to promote additional wellness procedures, you should be way ahead of your current projected income on a per patient basis. To add icing to the cake, determine the difference in your new protocol tally with that of the existing protocol. Multiply the difference times the estimated annual patient load previously established. With a mere one-half hour of computations, you should have arrived at a tremendous monetary incentive for making changes now to your vaccine strategy.

The flexibility of a real time Excel worksheet where you can rapidly try different fee changes and add and subtract services at a click is truly worth the time and effort. Once a template is established, it can be revisited on quarterly or semi-annual basis for refinement, and in response to new ideas about the best pet care.

Such a mini-budget for vaccines allows you to proactively drive your practice forward to meet client need without a knee-jerk reaction in response to negative media coverage of the veterinary profession about a perceived over-vaccination problem or to the reams of client Internet printouts presented in the examination room.

Be able to measure the history of your practice and plan the ramifications of a changed schedule. Make your own destiny by gradually implementing and adjusting what you do on a daily basis by applying the scientific knowledge available and your own common sense about appropriate patient care.