Don't believe everything you hear about fees

ONE OF MY FAVORITE CHILDHOOD PASTIMES WAS SITTING around a campfire with family and friends. Often we'd take turns telling ghost stories and urban legends—the man with a hook for a hand, the killer in the back seat, the evil babysitter, and so on—to see who could scare the others the most. The flickering firelight and dark woods made a perfect backdrop for the stories, and our efforts resulted in more than a few sleepless nights.

But you don't need a campfire for tall tales. When it comes to fees, urban legends are alive and well. Practice owners hear them and may suffer a few sleepless nights of their own when designing their fee structure. Following are 10 common myths about fees. In my work consulting with individual practices and conducting seminars, I hear each one time and time again. Here's what I want you to hear, believe, and hold close to your soul: Not a single one of them is true. When practice owners and managers finally jettison these misconceptions from their belief systems, they discover newfound success both financially and in the level of care their practices provide. Again, I've seen it firsthand time and time again.

So pull up a chair and get ready for a session of mythbusting. Maybe you'll even sleep better tonight. Have you heard this one ... ?

Myth: Every client wants a cut-rate bargain.

Reality: Clients want value, and price and value are implicitly linked. As consumers, we expect to pay more for Emeril's cooking than for Burger King and more for a Lexus than a Kia. At the same time, value is a matter of opinion, not fact. Setting your prices requires understanding what your clients value—and you don't have to guess. They value high-quality care, compassion, honesty, courtesy, respect, sincerity, and timeliness. If you deliver in these areas, price is rarely an issue.

Myth: If I raise fees, my clients will bolt.

Reality: Most consumers are willing to spend money; they're just selective about where they spend it. Clients expect value for their dollars. They want the best for their pets and know that high-quality veterinary care comes at a price. (See "Meet the truth seekers" for proof that you can raise fees and retain clients.) Instead of worrying about the fallout if you increase fees, focus on providing the level of patient care and client service that justifies your fees and keeps clients coming back.

Myth: It's best to raise fees across the board.

Reality: Clients attach different values to different services and products. They're price-sensitive about vaccinations and elective surgery, and they're willing to pay more for services that depend on doctors' time and knowledge, such as examinations, lab work, and diagnostic imaging. Consider these tactics for your prices:

• Use a competitive fee strategy for price-sensitive services. Think about how your practice compares to others in the area as far as number of doctors, practice hours, level of medicine, facility type and condition, community reputation, specialized services, and so on. Then consider the fees other practices charge for price-sensitive services.

• Use a cost-based strategy for inventory items. Add an average markup of 150 percent to the standard cost of medicine, including sales tax and shipping, along with a dispensing fee of $9 to $12. Then compare this total fee for the item to your minimum fee and bill the client the higher of the two. Here's an example:

Keep in mind that dispensing fees and minimum prescription fees will vary depending on community economics.

• Use a value-based strategy for the doctors' time and knowledge and for services that enhance clients' perception of value. Pet owners will pay top dollar for a high level of medical care and client service. They also look for a convenient location, ample parking, cleanliness, professional team members who recognize them and their pets, and doctors who stay on schedule. Anticipate your clients' needs and give them what they're looking for to leave them dazzled and delighted. (See "Comparing your fees to Well-Managed Practices'" to see how your fee structure might look if you aligned your approach with benchmarks from Well-Managed Practices.)

Myth: I can't raise fees in the country.

Reality: Your location and surrounding environment are irrelevant if you provide high-quality care. Some practitioners in rural areas try to tell me their ability to raise fees—even cost of living increases—is limited because of the depressed local economy or because they're one of the few (or perhaps only) practice in town. "Practices in large cities can raise their fees more easily because they have a larger population to draw from and don't need to worry about losing clients," one rural practitioner told me during a CE meeting.

Myth: I can't raise fees in the city.

Reality: Repeat after me—your location and surrounding environment are irrelevant if you provide high-quality care. Some practitioners in urban areas say their ability to raise fees—even cost of living increases—is limited because clients have so many options for veterinary care. "Practices in rural communities have more leeway in raising fees if they're the only practice around and don't need to worry about losing their clients," a suburban practitioner told me—30 seconds after the rural doctor spoke up during the same CE meeting.

Myth: I can't ever give clients a break.

Reality: Discounts happen. Ideally, you will charge full value for all the care you provide, but discounting is acceptable on a select (and managed) basis if you're trying to influence where, when, or how clients purchase services or products. Discounts can also be a chance to "give back." For example:

• Bundled healthcare plans build compliance. You've recently developed a senior-patient standard of care that includes six-month exams, diagnostic testing (CBC with chemistry panel, thyroid panel, heartworm test, and urinalysis), fecal parasite evaluation, and chest radiographs. To encourage compliance, you offer a bundled plan priced lower than the a la carte fees. This works fine as long as the discount isn't more than 10 percent to 15 percent.

• Competitive ovariohysterectomy and neuter fees draw clients. These services are price-sensitive in many areas, and you can successfully offer them at a reduced rate compared to non-elective surgical procedures.

• Pro bono work or discounts for worthy groups enhance professional fulfillment and community goodwill. Most practices provide reduced-rate or free care for humane societies, shelters, rescue organizations, or indigent pet owners as a way to give back to the profession. This dedication is a testament to the concern and compassion you and your colleagues, along with your team members, feel for pets and people. The key is for you to decide the dollar value of the discounted care you can afford to give each year—that means set a budget—and then track how much you're giving.

Myth: Itemizing makes clients think we're nickel-and-diming them.

Reality: There's no right or wrong answer when it comes to the amount of detail you provide regarding your charges; it depends on how much your clients want. Balance is the key. Give clients enough information so they understand (and appreciate) the quality of care their pet received, but don't overwhelm them with too much information. And be sure that any fee for combined services is high enough to cover everything it needs to.

Tip: Always charge separately for your examination to highlight the value of the doctor's time.

Myth: If I charge for progress exams, clients won't come in for follow-up.

Reality: From a client's perspective, a medical progress exam has real value—clients don't have the clinical knowledge to identify whether their pet is better, and they want the peace of mind the doctor's exam provides.

Key fact: Giving away one $33 medical progress exam per day for one year equals a loss of about $10,000 of profit.

Myth: One size fits all for exam fees.

Reality: Your examination is the most valuable service you provide, and the fee must be commensurate with the time you spend conducting it. Well-Managed Practices report that at their hospitals:

• A physical exam lasts an average of 20 minutes and is priced at a median of $44.

• An inpatient or medical-progress exam lasts 10 to 15 minutes and is priced at about $33.

• An extended exam lasts 30 minutes and is priced at about $56.

Tip: When clients call and ask about your exam fee, quote a range and explain that it depends on the amount of time necessary to address the pet's healthcare needs.

Myth: I can charge less for multiple injections or days of hospitalization.

Reality: If all of the injections or days in your hospital are medically necessary, the fifth injection or day of hospitalization has just as much value as the first. An added bonus—when you charge for everything you do, there's less pressure to raise your fees.

Don't let these legends prevent you from being paid fairly. Keep an ear extended for myths and tall tales, and use legitimate guidelines from Benchmarks 2007 to craft a fee schedule that works for you, your clients, and your community.

Editorial Advisory Board member Denise Tumblin, CPA, is owner of Wutchiett Tumblin and Associates in Columbus, Ohio. Send your questions or comments to ve@advanstar.com