Growing a veterinary practice in a bad economy

You already know the economic news stinks. These days, we're bombarded with the bad news from all sides. No one really knows when things will return to normal. So what matters most is how you respond to the recession within your own clinic's walls—you have control over that. While veterinary practice certainly isn't business as usual, business does go on.

Here's the good news: According to Benchmarks 2009: A Study of Well-Managed Practices by Wutchiett Tumblin and Associates and Veterinary Economics, practices are reexamining their core services and strengths and focusing more on being efficient, effective, and productive. Clinics are streamlining inventory and staffing while continuing to emphasize the importance of adding value and exceeding client expectations. Here's an overview of what this year's study revealed about Well-Managed Practices and some tips you can put into action.

DON'T RELY HEAVILY ON FEE INCREASES

Has the recession caused prices to increase? Results say yes. Fees for services such as exams have increased nominally since 2007—between 2 percent and 5 percent. Diagnostic imaging fees have increased 7 percent to 8 percent. The largest fee increases since 2007 were in lab services (13 percent to 20 percent), sevoflurane anesthesia (17 percent to 33 percent), and nonelective surgical procedures (9 percent to 20 percent).

The best advice you can take away from this data is to continue to monitor your fee structure and implement changes as warranted. But it's also important to identify what clients value. Seek opportunities to maintain and grow revenue without relying solely on fee increases. When you make a point to communicate clearly and consistently, you remove the obstacles that stand between your patients and the care they need and deserve. Look at everything you do from your clients' perspective, then look for opportunities to exceed expectations.

"We focus on customer service in a relaxed atmosphere and hope that word-of-mouth about our excellent service overrides any questions about cost," says Dr. Peter Fisher, co-owner of Pet Care Veterinary Hospital in Virginia Beach, Va. "Clients come to us because we're consistent."

Here are some highlights from this year's survey of more than 200 fees:

• The median exam fee for a 20-minute appointment is $46, compared with $44 in Benchmarks 2007.

• The median exam fee for a 30-minute appointment is $59, compared with $56 in 2007.

• 12 percent of participants provide rehabilitative therapy services.

• The average out-the-door cost of a grade 1 dentistry procedure ranges from $231 to $300.

• Digital radiography fees are about 10 percent higher than film, depending on the size of the radiograph. The difference was 18 percent in 2007.

• Practices send 54 percent of their laboratory testing to an outside lab.

PROP UP DECLINING REVENUE

Production is certainly feeling the economic pinch. Medical revenue per doctor declined 3 percent from the levels reported last year in Benchmarks 2008. Each full-time-equivalent doctor (based on 40 medical hours per week) produces about $535,000 of medical service and product revenue, or $279 per hour, with an average invoice of $157 for doctor-provided care.

To combat the decline, practices are emphasizing client service, convenience, and compliance. "The value we derive from a client comes solely from the value that we provide to that client," says Dr. Darren Williams, owner of Mayde Creek Animal Hospital in Katy, Texas. "Our ability to solve our clients' problems, meet their needs, answer their questions, and enhance the bond between them and their pet is the ultimate driver of the client's perception of the value of our services."

To meet clients' convenience needs, 44 percent of this year's study participants offer outpatient appointments Monday through Friday starting at 7:30 a.m., while 37 percent schedule the last appointment at 6:30 p.m. or later. And to strengthen compliance, practices focus on clear, concise, specific direction about their patients' healthcare needs with consistent messages from everyone in the practice. "We stepped up our efforts to ensure that we're following up with clients if necessary care hasn't yet been scheduled," says Dr. Ken Lambrecht, owner of Westside Family Pet Clinic in Madison, Wis. "We don't want our existing patients to slip through the cracks."

KEEP EXPENSES AND COSTS IN CHECK

One positive result of the recession is a renewed focus on controlling costs, particularly inventory and staff. It's not unusual for veterinary inventory costs to run $10,000 to $20,000 higher than necessary. And staff costs inch up in many practices because of inefficiencies and low production.

When times—and cash flow—are flush, practice owners usually don't worry about the excess. But now that money is tighter, they're committed to improving expense ratios (in relation to revenue) in general, and particularly inventory and staff costs.

How are practices doing this? They're monitoring inventory by adjusting reorder points, accelerating turnover rates, and reducing the number and amount of products on hand. To manage staff costs, practice owners are eliminating overtime, scheduling for optimal efficiency, waiting to replace staff members who leave, and making hard decisions about downsizing underperforming employees.

Participants in Benchmarks 2009 report that their practices range in size from 1,500 square feet to 18,600 square feet, with an average size of 5,800 square feet. We analyzed the size of the facility in relation to the number of doctors and found an average of 1,800 square feet per full-time-equivalent doctor. Additionally, facility costs (rent, repairs and maintenance, utilities, cleaning, property taxes and insurance) average about $33 per square foot.

SHIFT TEAM CULTURE AWAY FROM DOOM AND GLOOM

Well-Managed Practices continue to seek opportunities to offer competitive compensation and benefit packages for their employees. Seventy-two percent of practices use an incentive-based compensation formula to pay their doctors, with a median blended rate (one rate on all doctor production) of 20 percent. The median rate in practices that pay split-rate compensation is 22 percent for medical services and 8 percent for medical products.

While median compensation rates for nondoctor staff saw little or no increase in 2008, pay rates in practices in the 75th percentile are up an average of 3 percent to 6 percent compared to 2007. Well-Managed Practices are adapting to meet the challenges of the recession, communicating the necessary changes to their employees, and involving them in goal-setting. "Our goal is to add client value and retain our superstar staff," says Dr. Charles Curie, owner of Country Doctor Veterinary Clinic in Jefferson, Ohio.

To retain employees, offer CE opportunities to show them you value their talents and are investing in them for the long term. Be open with them about the realities of life right now. Honest discussions about staffing, compensation, and benefit changes tell your team that you respect them enough to keep them informed and that you value their input—even if you can't make all the changes they'd like.

HERE COMES THE SUN

This is a chance to refocus on what makes your practice stand out. Perhaps you have an uncanny knack for diagnosing those hard-to-pinpoint medical cases. Maybe you're brilliant at client communication. Whatever you're great at, focus on it so you're not just surviving, but poised for growth. ?

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