Break off the love affair with the big office visit fee

I had a dream last night, probably because of dinner I over-consumed as usual.

I dreamed about a horse race in the old West. It was a 100-mile race from Dodge City, Kansas to Amarillo, Tex. The prize was $1,000, and the crowds were building at the finish line to see this historic event. After all, $1,000 was a lifetime of income for most, in those days.

Gerald Snyder, VMD

There were only two contestants after the eliminations and they could not have been more different. One was a flashy Clark Gable type, with a beautifully cut tuxedo, a silver saddle and a slim and elegant Tennessee Walking Horse, while the other reminded me of Ernest Borgnine, always a bit rough around the edges, nothing fancy, work clothes and a horse that looked more suited to be pulling a plow.

The race turned out to be a dead tie, and they each got $500. By the time the Clark Gable paid for his elegant suit, his silver saddle and his horse, he had about enough left to pay his hotel bill. The Ernest Borgnine type, on the other hand, was able to buy a 5,000-acre ranch in prime grasslands watered by a steady and dependable river. Guess who lived happily ever after?

Now, you ask yourself, why am I reading this? What's this got to do with my practice and me?

Is there a point?

O.K.! Here it is.

I spend about an hour each day reviewing my staff's research and recommendations for service fees for individual practices.

One thing stands out, loud and clear. Veterinarians have a love affair with their office visit fee. Some call it "examination," others call it "consultation," and I prefer "health maintenance examination." Today, we'll call it their office visit or OV.

How proud they sound when they say that their OV is the highest in their town. I cringe when I hear it. It goes against every psychological bone in my body. The OV fee is a greater predictor of the practice owner's ego than the quality of the medicine practiced, and inversely proportional to the level of management skills held by the team leader.

Office visit fee is just one fee. It is, however, the most visible fee, and it can turn off prospective clients, especially now, when despite the economic turnaround predicted by politicians, transactions in most American practices are down 15 percent from the levels three to four years ago in a majority of our practices.

Prices are dropping

The selling prices of small animal practices have dropped from one year's gross revenues, 20 years ago, to about 65 percent of a year's revenues today. Selling prices are a multiple of net income and that number has been shrinking for 20 years.

Don't get me wrong! There are $700,000 gross practices selling for $700,000. There are $1.2 million, two-doctor practices selling for $1.2 million. These are the very well managed top 3 percent of practices today. These are the practices with a strong grasp on economic reality.

If you cannot, from memory, say out loud, without running to your computer, what your practice average transaction fee for last month was and what your 2004 ATF needs to be, you are just not one of these best managed practices.

It always amazed me that the average practitioner can solve a Henderson Hasselbach equation but can't put together an annual budget that will protect his/her practice from economic mediocrity and low retirement income.

Amazing

Let's look at some numbers to make my point.

In a neighborhood with an average family income of $55,000, and a five-year growth projection of at least 5 percent, our computer programs say that a $90 average transaction fee is supportable.

The healthy ratio between OV and average transaction fee (ATF) is from 1 to 3 to 1 to 3.5. So often, one practice in such an economic climate has an office visit of $35 and an ATF of $70, while another has a $30 OV with an ATF of $90. The latter practice is much more productive and healthy. Please do the math!

With each having 5,000 transactions, the first is going to gross $350,000. The second, despite the lower office visit fee, is going to gross $450,000. Certainly, the $5 additional OV fee is going to generate $25,000, but the $20 lesser ATF means a drop in gross revenues of $100,000.

The office visit is not a sacred cow. It does not tell people how good your medicine is. Raising your office visit fee by even a dollar may lose you a few prospective new clients if the demographics do not support it.

No sacred cow

Raising injection fees, in the same practice, by $2 is never a problem. Leave your office visit at appropriate levels. ATF is what pays the bills!

The office visit fee should stay at 55 percent of the average family income divided by $1,000. Thus, the example above of $55,000, $30.30 would be an excellent OV fee. In a more affluent area (within a five-mile radius) with an $80,000 average family income (2004), $44 would be more appropriate. This model works well for average family incomes between $40,000 and $100,000. More than $115,000, 55 percent of the median family income is a better guide.

In our example, the $35 office visit practice is hanging out a sign saying, "Don't come here unless you want to pay higher fees." The $30 office visit practice walks by that sign on the way to the bank with an extra $100,000 to deposit.

Now, assuming the labor and upkeep of the two practices are the same, and knowing that the Law of Veterinary Incremental Income states, "When all necessary practice expenses have been met, each additional dollar is a 75 cent profit." The higher ATF practice owner is going to have an additional $75,000 salary.

With discipline, and investing $6,000 per month, for a 30-year career, at even a 5 percent return, this retirement fund is going to have more than $4 million dollars in it. All because of sound management policies and leaving ego out of the equation.