Mission: Margin
A little financial savvy can go a long way toward enhancing your customer’s practice

Frank Batten, DVM, is not your typical veterinarian. A 1972 graduate of the Veterinary School of the University of Georgia, he started Wilson Veterinary Hospital in Elm City, N.C., in 1975. His sole employee was his wife, Flo. The practice grew through the years. In 1983, he opened Nash County Animal Hospital in Nashville, N.C. In 2005, he added Emergency Care VETS, an emergency hospital in Wilson, N.C. In between, he opened and sold another practice.

Then, in June 2007, he followed through on a dream by buying LaCroix Veterinary Hospital in Wilmington, N.C. It was his first practice acquisition. Since then, he and his CFO, Steve Thomas, a former investment banker, have acquired two more practices, each with two locations.

“I’ve always enjoyed the business side of things,” says Batten. “The dynamics of the profession [are such that] more students are graduating who are not interested in ownership. They’re more interested in doing veterinary medicine and not being bothered by the other aspects. So we saw this as the perfect time to make a move.” That interest in the business side of things may be the thing that distinguishes Batten from many of his colleagues.

Caregivers first
The fact is, many vets consider themselves caregivers first, business owners second. They got into this line of work because they love to care for animals. Even so, most know that without margin, there’s no mission. But the question is, are they equipped to do what it takes to increase the profitability of their practices? The answer is “yes,” according to those with whom Vet-Advantage spoke. It may not come as second nature to many of them, but vets can learn how to improve the profitability of their practices while improving patient care. And distributor reps can help them do so.

Building a new, modern office with state-of-the-art technology may be a bold, even necessary, step toward profitability and success. (See related article in this month’s magazine.) But in truth, most vets already have the resources they need - staff, technology and physical plant - to build a successful practice. What they might be lacking is the knowledge and mindset necessary to capitalize on those resources.

Plagued by self-doubt
“Veterinarians suffer from self doubt,” says John Sheridan, BVetMed, CVPM, DMS, MRCVS, and president of Veterinary Business Briefing, Storrington, West Sussex, England. “They don’t value their contribution to animal and human health,” says Sheridan, who spoke at the recent North American Veterinary Conference in Orlando, Fla. “They underestimate their clients’ needs. They underutilize their professional and support staff. In short, they are professional clinicians with no training or background in management.”

Their lack of financial know-how (as well as their failure to properly value their services) is often reflected in their fee structure. “Some vets say, ‘We love our profession; our main concern is the welfare of animals; and we just want to charge a fair and affordable fee for our services,’” says Sheridan. “But who is to decide what’s affordable? Even though you’ve known a client for years, you have no idea to what extent they are or are not able to spend money. So don’t charge fees because they’re fair and affordable. Charge fees that are appropriate for you to meet your business objectives.”

In fact, vets should price on the high side, and when in doubt, they should increase their fees. “People will willingly pay for services [that have perceived value],” he says. “The specific fee is of little consequence. It is the perceived value of your services that is important.”

The state of the practice
The vet who is serious about growing his or her practice needs to start by taking a cold, hard look at the current situation, says Sheridan. What does the local market look like? How many pet owners are in the area? How many vets? What services or products are you providing that the competition is not? What makes your practice special?

Key questions, of course, are how profitable is the practice? How much profit is the practice realizing on the sale of professional services? How about the resale of pharmaceuticals and supplies? Regarding the latter, the vet has to consider not only the cost and resale price of supplies, but staff time needed to order and inventory them, the cost of spoilage or shrinkage, and overhead. Likewise, figuring out the profitability of professional services involves more than merely knowing the salary of the vet and staff. There are benefits to consider, equipment, the physical plant, etc.

After looking at the practice’s current situation, the vet needs to establish some targets. Figuring out how to attain them may not come naturally to many. “Management is being concerned about where we are not, and where we want to go,” says Sheridan. “It’s planning. Then it’s organizing your business resources to achieve specific objectives, which need to be defined, and then monitoring performance.”

Setting profit objectives
Sometimes vets shy away from setting aggressive profit objectives because they overestimate what’s needed to attain them, says Sheridan. “Most people think that, if they plan to grow their practice’s profits 50 percent, they have to work 50 percent harder or increase their fees 50 percent. But it doesn’t mean that. What it does mean is managing one’s practice resources more effectively.

For example, does the vet have a handle on patient-visit trends? Are visits rising or falling? Are they being monitored? Does the vet have a handle on the number of lapsed clients he or she has? Better yet, does he know why they have stopped visiting the practice?

Does the vet know the average number of visits by a single client? “If you know that the average number of times your dog patients come in per year is four, you can ask, ‘What would happen if we made that 4.5 times?’” says Sheridan. “That could have a huge impact on your practice. I believe you can do 20 percent more work with the same number of fixed assets you already have. The only variable would be the cost of drugs and supplies.”

How might the vet increase the number of his or her dog patients’ visits? Well, if it’s true that as many as 10 percent of dogs have congestive heart failure, as studies suggest, then the vet can urge clients to bring their animals in more frequently, so the condition can be monitored, says Sheridan. Similarly, if it’s true - as data from the American Animal Hospital Association suggest - that a large percentage of animals in need of dental work fail to receive appropriate treatment, then vets are missing a huge opportunity to increase patient visits. “If you decide it is clinically appropriate, can you increase the number of dental procedures per 100 patients?” asks Sheridan. This one thing can have a huge impact on the profitability of a practice.

But achieving higher visits per patient, such as in the examples above, demands that the practice have written clinical protocols in place, agreed upon by all the physicians in the practice. “And once having agreed on the protocol, do the clinical staff always recommend diagnosis, treatment and management that are in line with it?” asks Sheridan. The only way to determine that is to review the medical records.

But clinical protocols don’t stop with the physicians. All support staff must be informed about the protocols and “sold” on their value. “[The success] of protocols depend on staff compliance,” says Sheridan. “It depends on the members of the staff buying into the protocol and making sure it happens.”
But even that’s not enough, he continues. “You also need to know to what extent your clients say ‘yes’ to the advice offered. If you recommend a certain procedure, you have to see if it was done, and if not, why not.”

Compliance
Karen Felsted, CPA, MS, DVM, CVPM, agrees that compliance is key to maintaining and improving the profitability of a practice. “Even without offering new services, if our clients were following our current recommendations, our professional services and product sales would increase,” says Felsted, who is CEO of the National Commission on Veterinary Economic Issues in Schaumburg, Ill.

That’s assuming, of course, that the vet is actually making recommendations. In the rush of their practices, veterinarians can simply overlook the need to make recommendations, says Felsted. “You get busy, you get backed up, you’re not utilizing your staff as much as you should. So, every time your client needs a dental, do you have time to make that recommendation?”

Assuming that the vet does indeed make a recommendation, some clients won’t follow it no matter what, says Felsted. But veterinarians might try holding up a mirror to gain more insight into the compliance problem. First of all, does the vet impress on the client the value of his or her recommendations? And second, does the vet communicate that value to his or her support staff, so they can reinforce it to the client?

Third, does the vet make it easy for clients to follow recommendations? For example, if a follow-up visit is warranted, is the office open at hours that are convenient for most of its clients? If the pet must take antibiotic eye drops several times a day, does the vet have the capability of taking in that pet to administer the drops, rather than rely on a client who might work in an office to do so?

The fact is, vets are busy, but so are their clients. Successful vets will accept that fact as an opportunity to improve their processes, clinical care and profitability. “It’s easy to say, ‘That client ought to remember they need to come back to refill a prescription,’” says Felsted. But the vet needs to support his or her recommendations with a robust reminder system, which monitors prescription refills, follow-up appointments, lab work for pets following certain drug treatments, etc.

Controlling costs
While vets - like all business owners - must keep an eye on revenues, they would be well advised to keep an eye on expenses too. “I think there are ways for almost every practice to take advantage of cost-cutting opportunities,” says Felsted. The two biggest areas are inventory costs and support staff.
“You want to keep as lean an inventory as you can,” she says. “The more inventory there is, the more likely it is to go out of date or for people to steal it.” Volume purchases from the supplier can be a good deal, but usage must justify it, she says. “If it’s a good discount, if you’re going to use the product within a reasonable amount of time, and if you have the storage space … why not take the deal?” she says.

Efficient utilization of support staff is another huge opportunity for savings and improved efficiency. “In most practices, most of the time, people are not standing around twiddling their thumbs,” says Felsted. “But you do find staff members who are not trained well enough to increase the level of things they’re qualified to do.” So, staffers are engaged in a lot of busy work, such as rearranging meds in the cabinets.

“You need to look at scheduling and job responsibilities, so you have staff there when you need them,” she continues. “It’s not easy to implement. It means looking at everything that people do and asking, ‘Is this a task that needs to be done? Does it need to be done this frequently? Should this person be doing it, or should someone else be doing it? Is there an easier way to do it?’ If you don’t make the time to ask these questions, you’ll never improve.”

Efficiencies realized
Frank Batten and Steve Thomas are all too aware of the costs involved in running a successful veterinarian practice, owning, as they do, several of them. Not surprisingly, salaries and supplies top the list. Yes, there are efficiencies to be gained by buying supplies and pharmaceuticals in larger quantities. “We get increased turns and price breaks,” says Thomas. But there are other, less tangible efficiencies to be realized in owning multiple facilities. “There are knowledge efficiencies,” says Thomas. “People learn something in one place and apply it elsewhere.”

But profitability isn’t reserved for vets who own multiple practices. Any vet can realize efficiencies simply by hiring qualified people. “We like to find good registered veterinary technicians, then let them do their jobs,” says Batten. Though they may come highly trained, techs need ongoing training to maximize their value to the practice and its patients. And that’s where distributors can help. “Training is an offering that distributor and manufacturer reps offer,” says Thomas. “We’ve been trying to take more and more advantage of it.” Adds Batten, “We’d love a meeting every week with information passed on to us from outside sources.” Distributors can also enhance their value by providing reliable, prompt equipment repairs, and by providing loaners when a piece of equipment is expected to be down for an extended period of time.

Profitability can also be enhanced by increasing the availability of the practice to its clients, for example, by opening an hour earlier, according to Batten. Another way is to become more convenient, by accommodating hospitalizations and morning drop-offs.

Clinics should also turn their attention to getting paid what they’re owed. “Make sure you’re not overlooking charges,” says Batten, who has instituted a three-point checkoff system for charges, starting with the technician and extending to the doctor and the front office. It’s important that everyone in the office know how the charge system is structured, adds Thomas. An automated practice management software system facilitates the process.

Distributors can help veterinarians establish reasonable, defensible charges for so-called “designer injectables,” says Thomas. Some of these products cost so much, vets might wonder if their standard markup might be more than the market can bear. “People are struggling with what is the right way to price these things,” he says. Because they visit many offices in their territory, sales reps can offer some perspective on the issue.

Vets face another charge-related challenge today, says Batten. That is, how do they charge their clients for the state-of-the-art equipment and facilities, which are becoming standard today? “Clients are requiring a higher standard of care all the time. There are things we have to do to meet these increased standards.” Some examples: ICU units, sophisticated anesthesia monitoring equipment, diagnostic equipment, and new equipment for the OR, such as circulating-hot-water heating pads. “These are increased costs we can’t charge separately for,” for fear of arousing mistrust and resentment among clients. Yet, how does the practice recover its costs?

“You have to demonstrate and show your client all the things you’re doing for them, and make sure they’re fully educated about them,” says Batten. “And the staff needs to understand it and believe it, and explain the value to the clients,” adds Thomas.
Economics aside, veterinarians who want to maintain and enhance the profitability of their practice should keep one thing in mind, says John Sheridan. “Value is enhanced by the little things - smiles, cleanliness, eye contact, communication and reliability.” All of them are already at each vet’s fingertips.