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Those who travel in herds get slaughtered

Article

Fee setting in veterinary medicine is chaos personified. For lack of a better term, I call it transition theory.

Fee setting in veterinary medicine is chaos personified. For lack ofa better term, I call it transition theory.

In a plane, with parachute strapped on, we're comfortable. On the ground,we're fine. Just contemplating the jump from one to the other can triggera third degree sphincter spasm. Raising the fees for our services is exactlylike that for most of our profession.

In the mid-'80s, I commissioned a survey where clients of consultinghospitals were asked to place a value on common service procedures likeanesthesia and hospitalization and some 300 other services. For each reply,the value was divided by the office visit fee of the hospital providingthe service.

After some three thousand clients were interviewed, a mathematician didall kinds of univariate and multivariate analysis to the point where webegan to understand the relative value of services to our clients as itrelated to any office visit fee charges. Obviously, more affluent areashad higher office visit fees and therefore higher services fees could betolerated.

We knew from our surveys, that intestinal parasite screens (formerlycalled fecals) should be no less than 61 percent of the office visit fee.In those days, solo practitioners were doing 10 such tests a day. Raisingthe fee in a $25 office visit from an inappropriate $11 to a surveyed $15.25meant $4.25 x 10/day x 307 days/year boosted the bottom line by $13,047.Adjusting the other 300 fees meant remarkable changes for the better inbottom line results.

Through the '80s and '90s, we provided to subscribers to our managementadvisory the ability to give us their office visit fee and we provided themwith a list of 300-plus fees appropriate to that level. In retrospect, thiswas a dumb thing to do!

This was really, really dumb, in the fact that we assumed that the practitionersknew what their office visit fee should be. Now we realize that nothingcould be further from the fact.

Yes, of course, the practitioner was much better off as his or her feeswere in perspective and matched clients' expectations for each service,but we found out over the years that practice owners, following a herd mentality,cut millions from their lifetime earnings.

Most practitioners, new to an area would charge the same as the restof the practices surrounding them and each feared to be the first to risehigher than the others, despite the severe economic consequences of theireconomic cowardice. Despite annual growth in their gross revenues, net incomefell for most, far below the 40 percent model that we recognize as appropriatefor our education, dedication and investment.

Facts come to light

Today's technology allows us to determine for a radius of any distanceneeded, the demographics of average household incomes and the appropriateand affordable office visit fees for that hospital. For perhaps the firsttime, the market sets the office and service fees, not the other way around.

As we study the applications for this service that we provide, so manyfacts come to light.

First, despite the guideline that average client transaction should bethree times the office visit, the average of 525 researched practices wasonly 2.56, a loss of 17.18 percent of their income.

This cost the average practice studied a sum equal to 0.1718 x 0.81 (averageclient transaction profit after breakeven point) x their average clienttransaction fee. In a solo practice with a $90 average client fee (nationalaverage today and 5,000 transactions a year, this amounted to a very, verysad $62,621 in unrealized net revenues.)

Put another way, this $450,000 practice coulda, woulda, shoulda oughtagrossed $555,555 for the year and that's not the baddest news. Stay tuned,badder to come.

Here is the badder news

A review of the demographic areas with average household incomes specified,shows conclusively that their office visit fees should have been an averageof 14 percent higher than they were currently charging. Using the modelabove, that $450,000 practice should have brought in 14 percent more thanthe $555,555 noted, for a total of $633,333 or 29 percent more than the$450,000 received. That additional $633,333 less $450,000 or $183,333 x0.81 equals $148,500 in unrealized net revenues.

Over a 40 year professional career that amounts to almost $6,000,000in unrealized net income. Well, I guess chaos does not pay well.

Self-test

Test yourself. Ask your Chamber of Commerce for the 2000 census datafor the average household income for your area and knock off the thousands(64,000 becomes 64) and use 55 percent of that number for your office visit.Then, of course, your average client transaction fee should be three timesthat number. How close are you? Huh? Huh?

Are you following the herd mentality today? Are you getting slaughteredin the process? Do you consider yourself progressive in ordering the publishedAmerican Veterinary Medical Association or the American Animal HospitalAssociation fee schedules that only report the direction that the herd ismoving on the day of the survey?

Those practices do not occupy your building with your overhead and yourlocal population. Do something about it!

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