2012 and beyond: Economic outlook clouded by a myriad of new challenges for veterinary practices

NATIONAL REPORT — Small-animal practices have a numbers problem.

Patient visits are dropping, pet health is declining, client incomes are down and unemployment is up. With all of these challenges going into 2012, it's easy to become disheartened.

"Someone asked me the other day: 'If you knew what it would be like now, would you do it again?'" recalls Dr. Lee Stuart of Safe Haven Veterinary Hospital in Palm Coast, Fla. "I said, I'm not so sure it's worth it anymore."

Stuart, like so many other veterinarians—and Americans—is operating his business in an area engulfed with a foreclosure crisis and high unemployment. During the boom, his practice was growing, and construction was king, prompting Stuart to move his business to a larger space —from a leased office to a building he purchased. The local area had three small-animal practices in the early 2000s and now has eight. But as residents' incomes have dropped or people have moved out of town, business at Stuart's clinic is down some 40 percent. "Somehow we're finding a way to keep our doors open," he says. "We're trying to recreate the practice as we go."

Retooling the client experience, reinforcing the importance of preventive care and tweaking a practice's focus may be just the ticket for veterinarians to combat the increasingly strong industry headwinds next year and beyond, experts say. "Veterinarians are not at the top of their game in terms of monitoring business metrics and managing practices as well as they could," says John Volk of Brakke Consulting, which, along with Bayer Animal Health and the National Commission on Veterinary Economic Issues, conducted the Bayer Veterinary Care Usage Study released earlier this year. "Veterinarians have relied too heavily on fee increases and not improving the performance of the practice from an efficiency standpoint. Now it's starting to come back to bite them."

Enhancing business efficiency will be a key to future success, agrees Karen Felsted, MS, CPA, DVM, CVPM, chief executive officer with the National Commission on Veterinary Economic Issues (NCVEI). She says that while the recession certainly has hurt veterinarians, simply blaming the economy isn't productive. "Just because there's a recession doesn't mean veterinary practices can't do well financially," she notes. "Doctors will have to see more patients, staff will have to work more efficiently and (practices) will have to watch prices. Significant price increases are not sustainable, and (veterinarians) have to link price more closely with value."

Creating—and communicating—value

To that end, Volk notes that if a pet owner truly understands the importance of taking a pet to the clinic and what exactly occurs while the animal is there, consumers may be more willing to spend money with a veterinarian. Dr. Mike Cavanaugh, executive director of the American Animal Hospital Association (AAHA), agrees. "Look at the bottled-water industry," he says. "People spend millions of dollars (on it) because people think it's better and convenient. People are willing to spend money, even during tight economic times, as long as they feel like there is value there."

At the heart of the value proposition is emphasizing the physical exam, Cavanaugh says. "In doing so, you're able to emphasize that vaccinations are important, but an examination is where you're buying a veterinarian's expertise."

Although a veterinarian knows she is examining a pet's skin and hair or checking the health of internal organs during a physical exam, it may appear to a client as a doctor holding the animal or petting it. Communicating what exactly is occurring during an exam while it occurs will help clients appreciate the importance of bringing a cat or dog to the clinic and having a veterinarian examine its health. Veterinarians also should tell clients "what constitutes finding signs of good health and potential problems," Volk notes.

He further explains that many veterinarians think they are doing this well and, when surveyed, say they are talking through the exam with a client. However, when pet owners were questioned on this topic, they say they don't know what is happening during the exam.

"Veterinary medicine is a mystery to people," adds Felsted. "We need to communicate specific kinds of veterinary care and why it is important." That, she says, will help create a high-value experience.

In-depth explanations are also essential to recommending a procedure and communicating why it is important. Instead of simply telling a client that Fluffy needs a dental, Felsted recommends explaining that Fluffy has a lot of plaque and that the procedure will enhance her breath and reduce the chance of an infection or other systemic problems. Cavanaugh adds that veterinarians should make firm recommendations and emphasize their professional expertise. "A lot of veterinarians," he says, "will give (a client) five or six options, but are not firm in saying, 'Here's what I think we should do.'"

Emphasizing wellness

The Partnership for Preventive Pet Healthcare was established in July, and by September 1 the group, which is made up of 19 veterinary associations and other industry-related companies and parties, published canine and feline preventive healthcare guidelines. The group and the guidelines were founded, in large part, due to the highly revealing statistics gleaned from studies published this year, including the Bayer/Brakke study and the Banfield State of Pet Health 2011 report. The upshot of that research is obvious to most practicing companion-animal veterinarians: Visits are down and pets are coming into the clinic sicker.

While the lagging economy may not be solely to blame for veterinary practices' challenges, the preceding boom may have made certain service gaps less noticeable, Cavanaugh contends. "If you go back a few years, all practices were busy and the economy was strong. Things start to fall through the cracks: You don't have as many cats coming in. People aren't paying as much attention to vaccinations, fecal exams, etc."

As first reported by DVM Newsmagazine, Banfield's data revealed that several preventable diseases and conditions are on the upswing. Parasites have been on the rise in cats and dogs for the last five years. The prevalence of fleas and ticks on pets has increased, and both dental disease and ear infections are also up, among other common conditions.

Moving forward, many think promoting the idea of preventing problems before they start and ensuring pets have routine care will not only enhance the pet population's overall health, but also help spur veterinary visits. According to Volk, the Bayer/Brakke study found that when a practice had a strong belief in the importance of wellness exams, that drove visits. "If veterinarians can educate pet owners on the need for preventive care, and even more attention as pets get older, and that those routine visits can keep pets healthier, there's a great opportunity there," says Volk.

Especially as pets age, he adds, there is a large disconnect between owners' beliefs about the importance of pet healthcare and what is actually necessary. "Part of that goes back to the vaccination issue," Volk says, noting that many owners surveyed associated visits with vaccinations. "Owners don't appreciate that older pets need more medical attention. You would think it would be intuitive because as people get older we need more medical attention, but not everybody makes that leap."

The preventive pet healthcare guidelines should be a key tool in every practitioner's arsenal, adds Felsted. "To me, one of the best things is that veterinarians could use them as a mantra when educating clients."

Embracing a niche

Thorough preventive care is commonplace among Dr. Kate Knutson's patients. At her practice, Pet Crossing Animal Hospital and Dental Clinic in Bloomington, Minn., she often sees patients many times throughout the course of a year for routine care. Annually, Knutson and her staff develop an individualized healthcare plan for a patient that consists of needed vaccinations, nutritional and dental assessments and baseline values, which include body films, dental radiographs, blood work and urinalysis. A pet's behavior is also evaluated.

"With us, we have a niche market, and it's preventive healthcare. We weed people out before they even come (to us)," she says. "We market to people whose pets are part of their family. My clients would give up smoking or Starbucks or cable to care for their pets."

This approach has been successful for Knutson's business, though she acknowledges it's not appropriate for all pet owners. Volk agrees.

"Pet owners are not all alike," he says. "There are different segments of the population that shop for groceries at Aldi or Sam's (Club) and others who shop at Whole Foods. I think we'll see veterinarians responding to pet owners and the different requirements they have."

To meet those demands, Volk predicts that practices may evolve to focus on low-cost basic services or more comprehensive medical offerings, along with some staying in the middle, to offer a wider variety of choices for clients.

Felsted notes that, in fact, there is a need for some practices to zero in on serving those owners with limited incomes. "The average household income in the United States is less than $50,000 for about 2.3 people," she says. "It's hard for people in a household like that to go (to the veterinarian) and write a $150 check. Those people are probably never going to do a total hip, but they still want to take care of their pets."

Even if a practice markets itself to those with average incomes, financial success is possible. After all, Felsted says, "Walmart makes a fortune."

Refining the business model has been a necessity for Safe Haven Veterinary Hospital's Stuart. As numerous low-cost vaccine and spay/neuter providers have moved into his practice area, Stuart says he focuses on wellness and higher-end offerings as well as the fact that his clinic is the only AAHA-certified hospital in the county. "We have people come here and say (they) go elsewhere for less-expensive stuff, but that they want to come here when they have a problem," he says. "We try to maintain a higher standard and a better array of diagnostics."

But business is tough, and he is not alone. "Once upon a time the standard was veterinarians wouldn't go out of business. We're definitely in different times."

Trend watch

As the veterinary industry moves into 2012, here are four key trends to watch next year and beyond:

1. Niche markets: "Everyone's trying to be all things to all people," says Karen Felsted, DVM, CPA, MS, CVPM, and chief executive officer of the National Commission on Veterinary Economic Issues. "You have to decide: Who is my market? It's impossible to provide high-end medicine and high-end service and charge minimal fees. It's the difference between shopping at Nieman Marcus and Walmart."

2. Focus on preventive care: The creation of the Partnership for Preventive Pet Healthcare and its recently released guidelines should offer a niche for a rally. "For a couple of years here, the emphasis is going to be back to basics," says American Animal Hospital Association Executive Director Dr. Mike Cavanaugh.

3. Referrals: As practices evolve to find a financial sweet spot, look for more practices that focus on basic veterinary services to develop stronger relationships with specialized practitioners to create a pet healthcare team. "Just like in human medicine, where your doctor may send you to a specialist or an imaging center," notes Cavanaugh, there is a place for such an infrastructure in veterinary medicine.

4. Mergers: Although some independent practitioners have sold their businesses to consolidators, Cavanaugh says that he expects to see independent practices thrive through mergers of one- or two-doctor practices with like-sized entities to create mid-sized businesses.

Communication keys

Using simple communication techniques can enhance a client's experience during a veterinary visit, which could encourage them to continue to bring their pet to the clinic, says American Animal Hospital Association Executive Director Dr. Mike Cavanaugh.

• Tailor your questions. During an exam, ask a client open-ended questions and allow the client ample opportunity to speak. After hearing a client's response, use reflective listening during the dialogue. For example, say, "If I'm understanding you correctly…" and restate what the client explained to be sure both parties are on the same page. "It gives the client the opportunity to know they are being heard, but also [to find out] if something has been misrepresented," Cavanaugh says.

• Sit down. When a person is standing, it conveys to the other party that he or she is about to leave. "You could spend 15 minutes with someone, and if you're sitting down versus standing, they'll think you've spent more time than you have," Cavanaugh says. A stool offers a simple fix.

• Eliminate barriers. "If a veterinarian has to turn their back to type on a computer or if there is a large examination table between the client and the veterinarian all the time, that's a barrier," Cavanaugh says.

• Emphasize shared decision making. When making recommendations, talk through the finer points so a client fully understands what needs to be done. That way, a client will feel like they have a say in what is occurring and that he and the veterinarian are working together to take care of the pet.