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Smoke and mirrors

Article

Drug companies are going to charge whatever the market will bear.

Brian Robinson looked at the invoice. He was coming to a slow boil. His classmates in high school had named him "Smokey" or "Smoke" for two reasons. First, it was because Smokey Robinson, the singer, was popular back in those days. But the real reason was that he would always get mad slowly. If something bothered him, he would be like a small smoking chimney and then after a bit erupt into a fiery volcano. When he was angry, it was over small things. The large issues just left him numb.

Smokey inspected the invoice once more and called the drug company. The phone at the other end answered in two rings.

"Hello, Acme Drug, this is Dr. Robinson down here in Springfield."

"This phone call is being monitored for quality assurance," said the voice from the other end.

"Hello, Hello," cried Smokey finally realizing that he was talking to what now seemed to be a robot.

"All our representatives are currently busy. Your call is now number four."

Dr. Robinson was starting to show red glowing cracks in the basalt veneer of the volcano. He waited.

Mindy Jefferson popped her head in the door of the office and stated that there were two rooms waiting, and Mrs. Adams was already late to her hair appointment.

Smokey swiveled back and forth in his office chair and circled his right hand in the air trying to communicate with everything except the English language, jesturing that he was on the phone and waiting for a reply. Seeing that Dr. Robinson was amid some sort of nervous breakdown, Mindy retreated to the laboratory next to the office.

Just as the lava was beginning to flow, a dull voice came on the other line.

"Acme drug, this is Sharla. How may I help you?"

"This is Dr. Robinson in Springfield, I need to talk to someone about the price of these nose drops I got in today. These drops cost $150 for 5 cc. Now what am I supposed to tell my client?"

"Dr. Robinson, you have called our office in Akron, Ohio. You will need to call our number in Kansas City. I believe they can help you."

"I get all my shipments from Akron; my representative is from Akron, and my wife is from Akron," he said acrimoniously.

"Yes sir your shipments come from Akron but all product questions are addressed in our office in Kansas City."

Dr. Robinson mulled this over for a millisecond and then blew forth from a hidden stream of magma.

"Miss Sharletta, or whatever you name is, I have been on this phone for 15 minutes, and I need to talk to someone somewhere on the planet that can help me with this issue — and I want to talk to them right now," Smokey screamed from somewhere south of his toenails.

Mindy was watching from the lab. She could almost see the lava flow from under the office door.

"Just one moment, and I'll transfer you now to our Kansas City phone banks," Sharla said blandly with practiced indifference.

In a few moments, another voice activation system connected. As the robotic voice droned on, someone broke in cheerfully in an unusual voice. Dr. Robinson thought momentarily that the voice sounded vaguely foreign but the English was immaculate.

"May I help you?"

Dr. Robinson reviewed the issue.

"Doctor that is the price. We cannot do anything about it."

"Can I speak to your supervisor?"

"Doctor my supervisor is in Kansas City."

"I thought this was Kansas City. Where are you located?"

"Well doctor, I am talking to you from New Delhi, India."

Smokey was now becoming numb. He could see sweat beading up on his fingernails of all places. Sharla had been true to her word. "Smoke" knew he was a beaten man. He thanked the man from across the globe and collapsed on the desk.

Mindy appeared a few moments later.

"Doc, it is almost noon, and Mrs. Adams had to leave for her appointment. You know Tubby, her Great Dane. She asked if you could fix him up over the noon hour. She said she would be back in an hour or so to pick him up. I think he has a hematoma."

Welcome to the 21st Century

Alexander Bell should be rolling over in his grave about now. For anyone over the age of 40, using the phone system in this country can be an extremely trying experience. Automation has brought forth a time sucking quagmire and is largely an outright barrier to customer service. It is certain to continue until some bright and enterprising young man or woman starts a business solely devoted to answering phones (gasp!) the old fashioned way — i.e. with Homo sapiens at the other end. (Australopithecus probably will do in a pinch, too).

Some of the same people that brought you automated answering devices have brought you the trusty old computer operating system. Your system likely has originated from Washington state. It likes to be invaded by spyware, viruses, hackers, chiggers and goats. In addition to endless updates and service packs, this system works better with firewalls and numerous utility programs brought to you by really smart people (programmers and others) from Asia and the Indian subcontinent. By the time all this is added into your system, it is time for a new computer — one that is fast enough to deal with the necessary added baggage. The only thing bulletproof is the endless "money wagon" that Bill Gates has developed in the northwestern rain forest.

Mirrors

Whether Smokey likes it or not, drug companies are going to charge whatever the market will bear. If a small quantity of nose drops cures or regulates a rare condition, the only way for the company to make any money is to charge accordingly. Otherwise the drops will go undeveloped or dropped from production. If the client must spend that kind of money on a cure or maintenance of a medical condition, they need to be informed in advance.

Smokey is looking in a rearview mirror hoping that prices were the way they were 20 years ago. The Smokeys of our profession can always recall when penicillin was dirt-cheap and was found only in the refrigerators of veterinarians and physicians.

Smokey and his buddies always sit in the corner of the bar at the state convention drinking $6 beers recalling the days of yore when you could get a Coke for 10 cents. I am sure this is some sort of emotional therapy, but it leads to poor business management practices.

Most of our clients are under 40 and are accustomed to paying high prices for everything in their lives. They don't know or don't care what things cost in 1978. They must live and pay bills in today's world. Older veterinarians (and some younger ones) are looking in the mirror looking for prices from the good old days. This creates a discount mentality that drags the whole profession along like a dead weight. How so?

Veterinarians just simply can't deal with the pricing escalator. Therefore, they devalue the products and services that they provide in hopes that in some crazy way they will wake up, and it all will be a bad dream. Most, but not all, veterinarians discount or fail to price their services accordingly because they reject the whole of the pricing structure dealing with delivery of veterinary medicine. In other words, they don't believe in the system they live in. And in some tortured and illogical form, they are fighting back by saying, "It shouldn't cost this much in the first place." Therefore, they will pass this mindset and some form of savings on to the client who has no idea they are getting the "deal of the day".

Veterinarians need to quit looking in the rearview mirror.

Here is the problem

If product A is $5, including shipping and taxes, and you charge $9 for this item, the thinking person says to themselves, "I have just made a $4 profit. That is pretty good, and that should be enough."

What is forever and a day forgotten is that it is not a profit at all — it is a business device. This small amount of change is the gross marginal profit and whoever in the business world started calling this a profit should be shot at noon.

Marginal profit is simply what is available to pay bills with — end of story. After you take all of this marginal profit and pay all your expenses, both fixed and variable, you then might have a small sliver to take home.

Therefore, marginal profits have to be large in order to pay the bills. This is where veterinarians just don't understand. Even though your mindset rejects the high price of products that comes with each invoice, you must set large enough margins to stay afloat.

Point to ponder

The marginal profit on a consultation is 100 percent. Therefore, veterinarians can make more hay while the sun shines by charging appropriate professional fees than any other manner — this is as opposed to continuing to attempt to make a living from product sales.

Some of you pretty new to all of this will say: "I didn't go into veterinary medicine to make a profit. I went in to practice quality medicine."

The message will look good on a gravestone, but it won't pay for the funeral. Associates and staff still want a paycheck, and this is their form of profit taking. They won't work for free, and their paychecks are really the profits of their work. You, as a businessperson, are no different, and net profits are not possible unless gross margins are high enough.

Mirror images

Older veterinarians think like they did in 1975. They think that clients think likewise. Therefore, some veterinarians tend to buy items they think their clients can afford (based on 1975 prices). They look in the mirror and remember that amoxicillin drops cost $0.67 per box way back when. Because the cost is a multiple of that now, they think that the client cannot afford that price and either do not charge accordingly or shrink the "spread" (the gross profit) to the point that they feel comfortable. The client knows nothing about this whatsoever. They just want their cat to be better.

To the veterinarian, the price in the rearview mirror is indeed small and getting smaller with gilding of time and a faulty memory.

Read the mirror carefully. It probably says: "Objects in this mirror may appear smaller than they actually are."

Dr. Lane is a graduate of the University of Illinois. He owns and manages two practices in southern Illinois. Dr. Lane completed a master's degree in agricultural economics in 1996. He is a speaker and author of numerous practice management articles. Dr. Lane also offers a broad range of consulting services and can be reached at david.lane@mchsi.com.

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