5 more things I learned at the 2017 AVMA Economic Summit

jan_banner_kev2
In my January 11 post, I shared five valuable things I learned at the 2017 American Veterinary Medical Association (AVMA) Economic Summit. Given the vast quantity of information shared at the summit, the takeaways warranted a Part Two.

Here they are — the second five of my top 10 summit takeaways:

1. Debt and depression are prevalent among vet professionals

Many presenters and participants commented on the relationship between financial difficulty and mental health issues. The numbers and anecdotes corroborate the fact that debt and depression are high in our industry. Click To Tweet

According to Ori Eizenberg, veterinary economic officer of the Student AVMA (SAVMA), 79% of graduates are concerned about paying their student debt; debt-to-income ratios are an average of 1.86, according to Dr. Bridgette Bain, AVMA assistant chief economist. Meanwhile, Dr. Scott Spaulding, member of the AVMA veterinary economic strategy committee, reported that 72% of veterinarians have observed substance abuse in a colleague. Click To Tweet

Charlotte Hansen, economist at the AVMA, presented on compassion satisfaction (the pleasure derived from providing care) and burnout. In a Professional Quality of Life (ProQOL) study, she observed the following:

Compassion satisfaction distrubtion

From 2015 (dark blue diamonds) to 2017 (green triangles), you can see the curves shift to the left. This implies a lower score on compassion satisfaction, which means the respondent derives less pleasure from providing care. Not good.

The study Hansen reviewed also covered burnout. As you’ll see in the chart below, the distribution curve is moving marginally to the right, representing an increase in burnout, which is as concerning as the decline in satisfaction, if not more so.

Burn out distribution

2. Raise practice profit by lowering costs

According to Terry O’Neil, accountant and head of the veterinary services group at Katz, Sapper & Miller, what distinguishes the 20% most profitable hospitals from the over 400 he reviewed is not how many new patients they saw, but how well they managed their expenses.

In his sample, top-tier hospitals are achieving 21.1% in direct costs as opposed to an average of 22.7% among other practices. Direct costs are the non-labor, non-overhead costs associated with veterinary services, such as the cost of a practice’s inventory.

That 1.6% difference may seem insignificant, but keep in mind that it represents a percentage of total revenue. With an average revenue of $2.8 million in the practices in O’Neil’s sample, that represents an additional $44,800 to the bottom line. In his view, “not seeing one more patient, you can still make your practice more profitable.”

3. Watch your assets

According to Lynn Dodge, an economist at Colorado State University who is working with the AVMA, “measuring profit alone does not adequately measure financial performance.” Click To Tweet In her view, the greatest opportunities are in assets and liabilities.

A practice owner’s wealth isn’t only reflected by the cash she or he can draw from the business; so much depends upon the equity value of the practice itself when it  comes time to sell. This is hugely impacted by decisions made along the way: do you reinvest into your business and grow the value of your asset or do you withdraw profits and hamstring your practice’s growth potential?

Dodge found that the high-performing hospitals she studied achieved a return on equity (ROE) of 0.725. That’s a 72.5% return on their investment. As she put it to me during a casual chat over dinner, “you show me an investment that yields you 72.5% return and I’ll buy!” (This probably explains the interest of consolidators.)Conversely, the lowest-performing hospitals she studied had an ROE of negative 0.554, or -55.4%. That would be a real dog of an investment, no offense to my beloved canine friends.

In Dodge’s view, the long-term secret to practice value comes from strong management of the balance sheet (assets, liabilities, and equity), not just the income statement.

4. Vaccines are on the move

Drs. Karen Felsted and Travis Meredith co-presented on shifts in the market share of core vaccines. Meredith is part of the team at Animalytix, a data analytics firm with access to distribution data (and, by extension, inventory purchases) from the major veterinary distributors. Using volume of core vaccines as a proxy for patient care, they considered the net change in doses dispensed by practices to analyze movements in the market.

Segmenting practices into four tiers by size from Tier 1 to Tier 4 (4 being the smallest practices), they observed a -4.8% decrease in Tier 4 compared to an 11.2% increase in Tier 1. Tier 1 practices include high volume, low cost hospitals, and this is what they identified to be the cause of the change. Pet owners are switching to large, low-cost practices for their core vaccines, and the smallest practices in the market are losing out.

5. Pet owners explore their options

Dr. Maureen Kilkenny presented her findings from the 2017 Pet Ownership and Demographics Survey. Surprisingly, in her survey of cat and dog owners, respondents reported that they access routine and preventive care for their pets from a wide variety of sources in addition to their primary care provider.

While more than 90% of dog owner respondents visited a veterinary clinic or hospital at least once in 2016, many of them also access care from mobile clinics, pet superstores, publicly-sponsored clinics, and shelters or humane societies.

As for the less than 10% who didn’t, interestingly, 40% said their pet was neither sick nor injured, 29% said they didn’t have the money to pay for it, but only 5% responded that the price of veterinary care is higher than it is worth. This challenges the view that dog owners (and pet owners more generally) may believe veterinary care to be overpriced.

Options aside, Kilkenny’s survey also served as an important reminder for all vet professionals. In the chart below, take a look at the number of cat owners who, in 2011, viewed their cats as family members. Now look at that same number for 2016. You’ll notice a dramatic increase — one that was reflected among dog owners, too. Let’s not forget how pet owners feel about their pets!

Is it time for a new veterinary model?

After two full days of charts and graphs and many pages of notes, Dr. Mike Dicks left attendees with this final thought: “Veterinary services prices are rising faster than human healthcare. Median household income is only rising at 0.34% per year. We have to provide more value with our prices.”

With retail locations of professional services closing almost as quickly as new ones are opening (see below), how we move forward depends not only on price and value, but also on delivery.

Annual number of professional and business service establishment

Granted, it’s a lot to think about. There are numerous factors impacting the veterinary economy. Between this post and my last, I have only touched on 10 but I encourage you to consider them one by one. Where, for example, might you find the greatest opportunity for improving vaccine compliance in your practice? You’ll be able to find the answer to this question and many more in the VetSuccess Compliance Tracker.


Thank you to the AVMA Economic Summit chairs and organizers, in particular Dr. Mike Dicks, chief economist, Dr. Bridgette Bain, assistant chief economist, Dr. Mike Topper, AVMA president and Dr. Roger Saltman, chair of the Veterinary Economics Strategy Committee, for lending us your time and expertise, as well as the charts and data included in this post.

Thanks also to Ori Eizenberg and Charlotte Hansen of the AVMA, Lynn Dodge of Colorado State University, Terry O’Neil of Katz, Sapper & Miller, Dr. Scott Spaulding of Badger Veterinary Hospitals, Dr. Maureen Kilkenny of the National Center for Food and Agricultural Policy, Dr. Karen Felsted of PantheraT management consulting, and Dr. Travis Meredith of Animalytix, for allowing us to quote you.

All copyrights reserved.