Sticker shock: Stop scaring clients with your veterinary fees

"All of a sudden, the price just skyrocketed. You could go when it was 60 bucks. Now I can't get out for less than $150." Those are the words of a pet owner interviewed for the 2011 Bayer Veterinary Care Usage Study. Sound familiar? Our clients are complaining about price more than ever before. And they're right in thinking that fees have increased dramatically.

Let's go back a few years to look at the change. From 2004 to 2006, 76 percent of the fees in the AAHA Veterinary Fee Reference increased faster than the rate of inflation. Examples?

> More than 60 percent of anesthesia fees increased 18 percent to 31 percent.

> More than 70 percent of treatment procedure fees increased 13 percent to 29 percent.

> A surprising 60 percent of surgery fees increased—some by a whopping 61 percent.

No wonder pet owners have noticed! The rate of increase hasn't been as dramatic since the recession, but fees are still going up.

Veterinary care has gotten more expensive because of the increasingly sophisticated medical options available, along with pets' extended life span, which results in more routine care and a higher chance for chronic disease over time. What we don't know about our disgruntled pet owner above, however, is whether she received a better bundle of services and more medical value for $150 than $60. Apparently she doesn't know either. All she sees is that visiting the veterinary clinic costs more than it used to, and she's not convinced it's worth it.

Veterinary care "sticker shock" is just one of the findings from the usage study, a research initiative conducted by Bayer Animal Health, the National Commission on Veterinary Economic Issues, and Brakke Consulting. Concerned that the number of dog and cat visits to veterinarians was decreasing at the same time the pet population was increasing, the study's authors set out to measure what exactly pet owners thought about the need for veterinary services and whether pets were getting adequate care.

The study identified six key reasons that visits have been declining. Besides sticker shock, factors include the recession, the fragmentation of services, the Internet, a lack of understanding about the need for care, and feline resistance to visiting veterinarians. We explored the need for client education last month (see the results at dvm360.com/skipthevet), and now we're drilling into a big reason for sticker shock here: failure to communicate value.

Pinpoint your profits

Is the cost of care keeping clients away from your practice? To find out, take a close look at your hospital's operating profitability. It's the most comprehensive indicator of financial success in any small business. Unfortunately, it doesn't show up on your regular financial reports. You'll need a little help. See a veterinary financial expert or head online to the NCVEI/VetPartners Profitability Estimator at ncvei.org.

Once you get the numbers, you'll see whether you're financially healthy or not. If your practice is highly profitable with growth in new clients and visits, then the fees you charge are probably fine. If your practice isn't as profitable as it could be, if you aren't attracting new clients, or if your visits and transactions are declining, pricing may be an issue for you.

Show clients what it's worth

Now don't assume that the solution is to run right out and reduce your fees. Clients may simply not understand what their money is buying them in terms of medical care. In order for pet owners to accept your recommendations, they must first understand them—and value them more than other things they could spend money on.

The first area to focus on is communication of value. For example, it's not enough for a doctor to silently examine a pet in front of the client, even if it's an expertly conducted exam. You must speak the results of your exam out loud in layperson's terms. Then move on to recommendations, treatment options, and prognosis. Many clients don't understand the need for a physical exam for their pets and are barely aware when it's happening right in front of them. (See "Clients feel uneducated—by you" at right for the troubling statistics.)

A 2003 article in Harvard Business Review focused on client service and value at the Mayo Clinic, probably the best-known brand in human medicine. The Mayo Clinic communicates value to clients extremely well, spending little money on traditional forms of advertising. Everyone at the clinic, from the janitor to the doctor, knows that everything they do makes a difference in the client experience. Mayo patients note that care is organized around their needs, not doctors' schedules or hospital processes. The authors note, "When a company's offerings are hard to judge, customers look for subtle indicators of quality." In other words, average people can't judge the quality of medicine a practice offers and focus instead on what they can understand: the service experience and the ability of medical staff to communicate with them.

Use judicious "discounts"

While communicating value is critical, so is the amount you charge for a service and your practice's overall pricing strategy. Now, it's true that many experts consider discounts, permanent fee reductions, and other fee changes a very bad thing. However, when used judiciously, they allow clients to provide better care for pets—and increase practice revenue and profits.

When the subject of discounts or the moderation of fee increases comes up among veterinarians, it's not uncommon for them to say, "My pediatrician doesn't do that—why should I?" But human medicine isn't the same as veterinary medicine; many people have health insurance and wouldn't consider skimping on care for themselves or their children. And, in fact, physicians do deal with some of the same issues. A hospital here in Dallas recently advertised a sale on colonoscopies: 50 percent off, with a free exam from a gastroenterologist thrown in!

Bottom line: A practice's pricing strategy can't be composed solely of large annual price increases. Consider your options. Here are a few:

Wellness plans. Pet owners in the usage study responded very positively to the idea of a payment plan where they would be billed in equal monthly installments for a year's worth of regular veterinary services. (Click here to read how one veterinarian does it.) This plan would cover all of the pet's routine healthcare for a full year, qualify them for special discounts or free visits, and eliminate large invoices at the time of routine-care visits. (No sticker shock!) The plan wouldn't cover diagnostics or treatment for unexpected illness or injury. Pet owners liked the predictability of the payments and knowing in advance what kind of routine care they needed to provide annually.

Banfield practices have used plans like these for years. Some non-Banfield practices have also implemented them successfully. (Again, see "What wellness plans can be for your veterinary practice".) Discounts in the plans are more than offset by profit generated from increased visits. Of course, you need to market the program. These plans must bring in new clients or encourage current clients to provide better care to be effective. You need to reach out in newsletters and brochures, on your website, in direct-mail campaigns, and face-to-face communication with clients in the practice.

Targeted discounts. Many practices already offer these in conjunction with calendar events, such as National Pet Dental Health Month in February. They can work well. For example, let's say you want to increase cat visits to your practice. You could run a program in which a discount is offered to cat owners who haven't visited the practice in over 18 months. Perhaps you'd offer a percentage off of total services or give a service for free or at a reduced rate. You could offer discounts during a month, a week, or certain days when the practice is slow.

Other examples of targeted discounts include a reduced rate for a service you want to promote (in-house blood work, tonometry) or a discount on a product such as flea preventive if a client pays for an exam.

The power of discounts and bundles is that they give clients who weren't going to come an incentive to visit the practice. The reduced price alone, however, won't keep pet owners visiting regularly. You and your staff must provide a good experience and explain the value in the care they get once they're at your door.

One key component of the strategy: You must track how many people are using your discounts and bundled programs to see if they really do increase revenue, visits, and the amount of care you provide to patients.

Give them ways to pay

Some clients who are fully committed to providing high-quality care for their pets are looking for payment alternatives. Pet owners may agree that your prices are fair and justified, but if they've got just $200 and a maxed-out credit card, they simply can't afford your $500 recommendation.

Research has shown that finance alternatives make a real difference in patient care. A study by Veterinary Pet Insurance found that its clients with pet health insurance on average had 41 percent higher stop-treatment levels, scheduled 40 percent more veterinary visits, and spent twice as much on veterinary care over the life of their pets compared to similar pet owners without pet insurance. A cardholder survey by CareCredit revealed that 71 percent of cardholders said having this option affected their decision to accept treatment for their pet.

Of course, you and your team need to understand the pet insurance and third-party payment plans yourselves to effectively recommend them to clients. Recommendations are most helpful when they include not only a general financing option but a specific brand along with the reasons why the practice thinks the product is the best one. This is no different from your medical products and treatment plans. Clients don't just want to know that their pets should be on heartworm preventive—they want to know which brand your practice recommends and why. (For more on payment alternatives, read my article at dvm360.com/waystopay).

Not every pricing strategy discussed here is going to be right for every practice. If your hospital is experiencing real growth in visits and transactions and has a healthy profit margin, you may not need to change much. But if your practice isn't growing and isn't profitable, it's time to change something, whether that's financing alternatives, smart discounts and bundling, better exam-room communication—or the straight-up cost of a service.

Dr. Karen Felsted, CPA, MS, CVPM, is CEO of the National Commission on Veterinary Economic Issues. John Volk is a senior consultant with Brakke Consulting.