Focusing on fees

If you're not charging the right fees, you could feel the pinch when you want to invest in new medical technology or give your doctors and team members a raise. And without the right fee-setting strategy, you could find that some fees get too high, while others don't reflect the value you offer.

As Dr. Deborah Beck-Ross of Penn Animal Hospital in West Grove, Penn., says, "We know that setting fees appropriately and charging for all of the services we provide is critical to our practice's financial success and gives us the resources we need to continue to elevate patient care. We're also aware that if we don't continue to raise the bar, there'll be a limit to what clients are willing to pay."

Dr. Beck-Ross, who owns one of the practices that participated in the 2005 Well-Managed Practice Study, says she looks at her fees in terms of her overall strategic plan. "Our strategic plan includes a decision to attentively monitor the quality of client service and the level of patient care to ensure that both reflect our fee structure," she says.

Case Study: Feline dental prophylaxis treatment plan

This more strategic look at fees, a departure from across-the-board increases, gives you more control. Ideally, you'll review your fees twice a year and selectively determine which ones need to be adjusted and by how much.

As you examine your fee structure, remember price is rarely an issue for clients unless you don't meet their expectations for service. So don't get distracted by thinking about what you believe clients will pay. (Although, they do want a convenient location, ample parking, a clean facility, friendly and professional healthcare team members who recognize them and their pets, and doctors who stay on schedule.) Your fee structure should reflect the quality of client service and the level of patient care in your practice.

Three fee-setting strategies

The key to setting fees that reflect the value and service you provide is to apply different strategies to products and services depending on the factors that affect them. These factors include the competition in your community, your costs, and the value clients place on the services and products you provide. These three pricing strategies help you adjust for those factors:

Educate your client about the bill

1. Competitive. Use a competitive pricing strategy for price-sensitive services such as vaccinations and elective surgeries. Compare your practice and its fees to other practices in your radius, which will vary depending on the population density in your area. For example, in an urban area, the radius may be only two blocks, while in a rural area, the radius could be as far as 60 miles. For suburban practices, three to five miles is a typical radius. The key is to know where you draw clients from so you can determine which practices you want to survey.

When looking at area practices, consider the number of doctors, practice hours, level of medicine, type and condition of the facility, community reputation, specialized services, and so on. Perform a community survey, asking your staff members to call surrounding practices, to gather this information

2. Cost-based. Use a cost-based pricing strategy to price inventory items. The average markup on most products ranges between 150 percent and 175 percent. Markups range between 50 percent and 90 percent for higher-cost medications; practices typically markup heartworm and flea control products 100 percent.

Applying pricing strategies to set fees

Drugs that remain on the shelf for three or more months require a 225 percent to 275 percent markup to cover the additional carrying costs. Dispensing fees and minimum prescription fees will vary depending on community economics. Tip: If you receive a discount on a bulk purchase, keep the discount instead of passing it on to clients.

3. Value-based. For doctor-provided services and services that affect the client's perception of value, use value-based pricing. An easy way to do this: Look at the relationship between the exam fee and other value-based fees. (See "Figure Your Fees Based on the Exam".)

Figure. your fees based on the exam

Your value-based fees can be higher than any other practice in your community, as long as clients believe you offer a good value for the price. If they don't, clients will look elsewhere. Use the 2005 Well-Managed Practice Study results and the 75th percentile column of the AAHA Fee Reference as a guide for pricing value-based services.

Are you on track?

While these three pricing strategies will help you set appropriate fees, you also need to decide which fees need adjusting. If you aren't already using the pricing strategies listed above, the answer may be all of them. Still, you'll want to consider several issues.

First, is your average doctor transaction (ADT) healthy? Ideally, your practice's ADT will represent 3.2 to 3.4 times the exam fee. So in a practice with a $38 exam fee, the ADT should range between $122 and $129. If your ADT falls below the desired range, ask yourself:

• Are your price-sensitive fees in line with the quality of care your practice provides? How do your fees compare to other practices in your community? Conduct a community survey for vaccination and elective procedure prices as a starting point to see how you compare.

• Have you set inventory markups, dispensing fees, and minimum prescription fees at an appropriate level?

• Are fees for doctor-provided services and services that affect clients' perception of value in line with the practice's exam fee?

• Are you charging for all services provided? We often see $10 to $15 of missed charges on 10 percent to 20 percent of outpatient cases. On hospital cases, we commonly see $40 to $60 in missed charges on 25 percent to 30 percent of cases. These oversights show up in your ADT. Plus, you won't maintain the client's perception of value if you discount or give away professional services.

Your income allows you to continue to maintain high quality of care because it facilitates doctor and team member education, technology, appropriate staffing, and compensation. Don't cut off your source of improvement. (For more, see "Giving Away a Fortune?" in July 2005.)

• Do you have a good mix of services and products? Ideally, medical services represent 85 percent of medical revenue, and medical products represent 15 percent of medical revenue.

Practices with a service and product mix that's more heavily weighted toward product sales have a higher-risk revenue stream, because there's more competition for product sales from other veterinary practices and Internet pharmacies. And often a higher percentage of product sales causes a hospital's ADT to drop.

If you find that your mix is off and you need to strengthen the service side, look for opportunities to improve client education and enhance patient care. Make sure clients understand what's involved in providing the best health care for their pets. Do they know why you recommend wellness exams, dental exams and cleaning, or baseline blood work as pets age? Select your key messages and consciously and continuously reinforce them with your clients.

Next, examine your scheduling protocols. Using a more proactive approach will help you enhance patient care. For example, always offer to schedule appointments with potential clients. Many people just need to be asked to say "yes," and it's surprising how infrequently receptionists ask callers to schedule an appointment.

Also train front-office staff members to schedule follow-up exams and recommended medical care at the end of the current appointment. If the client can't schedule before leaving, then follow up within a day or two.

And keep clients coming back with reminders—written postcards, phone calls, and e-mail. Don't assume that clients who don't respond to your written reminders won't return to your practice. Call them to schedule the appointment or determine why they've decided not to return.

Involving your front-office staff members in client education and compliance will help improve your level of service and care. After all, these team members are often the first and last impression clients have of your practice. And their direct influence on your clients' perceptions of the practice makes it critical to educate your staff members about fee increases.

Communicating changes to your staff members

All doctors and staff members must be onboard with the increases. If the doctors don't buy-in, they may discount services or not charge for specific procedures such as in-hospital exams. And if staff members don't understand why you need to increase fees, they may unintentionally communicate their resistance to clients, increasing complaints.

To head off these potential problems, hold a meeting with staff members to announce the changes. Make copies of the community surveys you've completed, and conduct a group discussion about the ratings. How friendly, helpful, and knowledgeable were their front-office staff members? How does their level of service compare to your practice's service?

While you're mainly considering fees here, take this opportunity to talk about any aspects of the other hospitals' front-office protocols that your staff members would like to integrate at your practice. Also discuss the services offered, client convenience, and facility differences between your practice and other hospitals in your community.

Quick Tip

Then explain that all of your fees need to be adjusted so that they reflect the quality of care and level of service you provide at your practice. Emphasize the medical benefit of raising fees—it gives you the resources necessary to continue to elevate patient care and to find new ways to provide the value your clients desire with the greatest efficiency.

After you get doctors and staff members onboard with the fee changes, they'll be prepared to answer clients' questions—though most practice owners say they don't receive any client comments about fee increases. In fact, you don't need to tell clients that you raised fees. Instead, present your fees as you normally would. For hospitalized cases, prepare written treatment-plan estimates and update the client daily. Everything you do to improve your level of service helps improve the client's perception of your practice.

"For clients, consumption isn't an isolated moment of decision about purchasing a specific service or product, but a continuing process," says Dr. Sheldon Rubin of Blum Animal Hospital in Chicago. "Every time we come in contact with a client, it's an opportunity to shine and validate the client's decision to choose our practice and pay our fees. During strategic planning sessions for our practice, we define everything we do from a client's perspective, and then look for ways to improve every single day, so clients continue to return to our practice."

Do everything in your power to make sure you don't put obstacles in the path of the clients you value. And, like Dr. Rubin, continue to look for ways to improve every day so clients continue to return to your practice.

The bottom line

Don't settle for across-the-board fee increases. Instead, determine the best fee structure for your practice by considering whether the pricing for each product or service needs to be competitive or based on cost or value.

Denise L. Tumblin, CPA, is co-owner and vice president of Wutchiett Tumblin and Associates in Columbus, Ohio. Jennette R. Lawson, CPA, is a consultant with Wutchiett Tumblin and Associates, which produces the Well-Managed Practice Study in conjunction with Veterinary Economics. Send questions or comments to

Denise L. Tumblin ve@advanstar.com