Have you noticed who pays the bills?

After 30 years of practicing small animal and exotic medicine, I found myself doing exploratories on the business of veterinary medicine.

I don't really know how I got here. It was not my original goal. I just opened my mouth one too many times in semi-polite conversation about the trials and tribulations of practice, and bam, became a speaker.

Of course, that soon led to being a writer and a consultant, and when I got an offer for my practice, I could not refuse. It was a relief because though my head was swollen, it couldn't quite accommodate two to three hats.

Further, I realized that the goal of providing healthcare for all the pets in a community was an exercise in futility. Most pets, about two out of three, do not get regular pet healthcare. Their owners are not bad people. They just have other, more immediate needs. These needs include food and shelter for themselves and their offspring.

Of quality and quantity

I have come to realize that the income of the average veterinarian is still too low, 30 percent lower than optometrists and half that of dentists, for one reason only. We try to provide affordable care for all pets that pass through our doors. I'm certain that letters to the editor will be forthcoming on this, but somebody has got to say it! Quality veterinary medicine cannot be dispensed to all without a government subsidy, and I do not see such in our future.

Guilt over doing what we were trained to do, diagnostic medicine and surgery, has damaged the quality of lives of a majority of our colleagues. This guilt begins in our veterinary colleges where we find that the self-esteem of students passing through a four-year curriculum falls with each passing year (Brakke Study 2000).

The guilt builds as we have to quote medical fees that potential clients cannot afford, and we take each refusal as a personal failure. Our receptionists look at clients with body language that says, "I don't know how anyone can afford that bill; I know that I can't."

Table 1 Are Practice Values Dropping?

Soon, we begin to procrastinate in adjusting our fees for inflation to the point where our profitability and the worth of our practices slides with each decade. In the '70s, the national average sales price for a practice was 80 percent of annual revenues. Today it is less than 40 percent (Table 1).

Our core client

Where are we headed and why? We have an ethical migraine of immense proportions. Clearly, the number of families who can afford veterinary medicine is dropping with each passing year consistent with the lower and lower numbers of workers in America. We are headed for harder and harder times unless we come to realize that our market is not all of the pets in America but the pets belonging to owners who can afford to pay us to keep their pets living healthier longer.

America no longer can support an individual veterinary hospital on each corner. Reality must begin to prevail. There is no solo practitioner in our land that does not want his or her own ultrasound, digital radiography and digital otoscope, but is that consistent with today's environment? We must locate where the population can afford us and consolidate to lower our overhead if we are to be successful. We must not lose sight of the bottom-line goal, which is to provide for the needs of our own families.

Take heed: Demographics should be viewed as a business tool and a reality test for practices. Last week, a veterinarian with a dozen years of experience asked me to evaluate the likelihood of success of opening a new practice in a city in California that projects an 11-percent rise in population during the next five years, bringing it to a population of about 13,000.

Average household income was $58,000, and median household income was $48,000.

I know that this kind of income could produce an average transaction fee of $95 in 2010 dollars, but the 2010 projection shows only 13,000 residents, and only about 36 percent of that will seek veterinary care (13,000 x 0.36 = 4,680 potential clients).

OK, so each of those clients will have 1.58 pets and come in 2.2 times a year producing 16,267 transactions and $1.55 million. Look good? Now add in that there are already four veterinarians in three established practices, and this enthusiastic entrepreneur would be number five. The four existing veterinarians average $387,000 each and possibly net as much as $120,000 each. This would drop the average potential income for all about $78,000, but the net would be much closer to the break-even point and would approximate $85,000. Further, the selling price of each practice would drop some $200,000.

These kinds of disasters are sprouting up, especially in the northern and central states, where populations are declining. We just have too many trying to fit into places that just will not accommodate them. What has saved these existing practices so far is that the top 17 percent of households in this city earn more than $100,000.

That means that about one in six households are paying the bills and keeping these practices afloat. That's only 500 great-spending clients per practice who are probably producing 75 to 85 percent of the profits. This community would be much better served if the four practices would consolidate in one larger building with a shared staff. Each would have more time off and more income provided by lower overhead.

We are a proud profession. We should be proud. We accomplish so much for so many with so little, particularly when compared to our human medicine counterparts. The same pride that makes us great might lead to our demise unless we pay attention to the world around us as it changes.

Author's note: Some may be persuaded to work backward from the numbers presented here to create ratios for future analysis. This may be dangerous to your economic health. Most of the analysis tools are economic curves that will not apply without calculus skills.

Dr. Snyder, a well-known consultant, publishes Veterinary Productivity, a newsletter for practice productivity and is available for in-practice consultation. He can be reached at P.O. Box 189, Hebron, KY 41048-0189; (800) 292-7995; vethelp@insightbb.com; Fax: (859) 534-5265.