October 2009

Drive Revenue Through Pricing – AAHA Veterinary Fee Reference
By Dick Goebel, DVM

Abstract:

Are you tired of rationalizing your fee schedule and frustrated with seat-of-the-pants decision making? This article addresses the need for fee increases, making adjustments for “shoppable” items, making sure fee increases translate to commensurate revenue increases, common errors in fee capture, what constitutes a “fair fee,” and discussion of a valuable veterinary industry fee resource, the AAHA Veterinary Fee Reference.

Fees Increase Every Year

Why consider fee increases at least annually? The easy answer is that your costs go up each year. The harder question is “how much?” If one compares the U.S. Consumer Price Index (CPI) to the U.S. Producer Price Index (PPI), one finds that the five-year average (04-08) CPI increase was 3.2% while the PPI average increase in the same period was 4.6%. One can argue that the latter is primarily related to products and not services, but there is still impact on our practices in the products that we purchase both for use and for re-sale.

In most years, personnel costs go up with minimal cost of living (COL) increases sometimes accompanied by merit increases. Benefit costs, especially health related, obviously increase at a more rapid rate (often 10% or more). Owen E. McCafferty, CPA, has frequently indicated that the typical inflationary affect on a veterinary practice is on the order of 6%.

You must decide for yourself what the inflationary impact is on your practice and make sure that you increase fees by at least that same amount. Failure to do so means you fall behind and profits are eroded. Consider this inflationary fee adjustment in the 4-6% range.

The Risk of Raising Fees

Cautionary Advice:  We cannot ignore questions about the sustainability of the large fee increases we’ve seen over the last 10 years, the apparent negative impact on the number of transactions and the increasing percentage of the pet-owning public who choose not to take their pets to a veterinarian. While fees have to increase for the purpose of keeping up with inflation and to catch up if you are behind, sustainable growth is going to have to come from new clients, new services, better education of clients, better communication, improved compliance, and increased acceptance of recommendations.

What About Competitive Fees?

As you are aware, some fees are “shoppable” and are, therefore, competitively priced. If you intend to increase your fees 5% overall, you must measure the impact of not increasing some fees or increasing them at a lesser rate. Ask your receptionists to log calls for several weeks to measure the questions your pet owners ask about fees. The list of “shoppables” may be less extensive than you think. Once you decide on which fees to freeze or treat as competitive, you must adjust the non-shoppable items at a higher rate. I suggest working with the top 50-100 procedure codes (by frequency) in order to calculate the impact of fee increases by item in order to achieve the overall average that you desire.

Do Fees Translate to Increasing Revenue or ATC?

In some practices, fee increases are NOT reflected in comparable increases in revenue or ATC (average transaction charge). You may have experienced this in your own practice and discovered that the fee increases lacked “buy-in” by associate doctors and staff. In fact, you found yourself as a practice owner finding ways to avoid implementing your recent fee increase!

There must be an understanding among all parties (associates, staff and, yes, owners) that fee increases are essential for the long term viability of your enterprise.

Without adequate revenue, you cannot properly take care of your personnel, invest in new equipment, upgrade your facility or fund your retirement.
It is essential that you understand your own practice’s financial situation well enough to communicate needs for fee increases and effectively present the evidence to your team.

Fee Collection Challenges

The support staff, and particularly the technicians who are working closely with the patients, are often most efficient at charging fees for work performed. Immediate data entry using workstations is most effective at capturing fees and minimizing oversights and lost charges. In many practices, travel sheets with most commonly used procedures are used with care providers merely checking off items as they are performed. It is essential to accurately and completely document all work (both services and products) for each patient as it is provided. It is not necessary, and is often counterproductive, to include the current fee for each procedure on this form.

Pitfalls include not documenting charges until the end of the appointment or even the end of the day – in other words, poor memory. Another common pitfall is doctor’s intentional failure to charge the new fee, or in some cases, any fee for (some or all) work provided. The latter situation is inexcusable. For an associate, this amounts to theft and, in some practices, is grounds for discharge (stated in employment contract). For an owner, it is also inexcusable as it violates your leadership responsibilities to your team and financial responsibility to the practice.  Also, due to the inconsistency with practice policy, it is very poor role modeling – and the staff is watching.

What Fees Are Fair?

While an argument can be made that our actual cost should be the basis for our fees, one should also consider that most clients don’t care what our costs are. Rather, our clients are more inclined to pay willingly in accordance with their perceived value of their services. Since we rarely know for certain what clients are thinking about perceived value and the dollars they are willing to pay, looking at survey data serves as a reasonable substitute. Surveys represent a fair indication of what clients are willing to pay for procedures in aggregate.

While fee discussion among practice owners within a shared market area is illegal, properly conducted fee surveys can be very helpful and are often provided by regional or state associations.

Two national sources that are quite useful are The Veterinary Fee Reference currently in its 6th Edition, published by AAHA (www.aahanet.org ), and the online interactive fee exercise offered by NCVEI (www.ncvei.org ).

Using The Veterinary Fee Reference (TVFR)

The TVFR reports fee data that includes both products and services, reports by 25th percentile, median (50th percentile), mean (average), and 75th percentile.
You may have already decided what your practice philosophy and culture shall be. The fee-related step is to translate that philosophy and culture to the fee data. If you are a high-volume practice focusing on wellness in a less affluent community, the 25th or 50th percentiles may be your target. If you are providing high-touch, high-tech services in a full-service facility, your target may need to be at least the 50th percentile or perhaps the 75th.

Further categories utilized are “all practices,” by number of veterinarians, by AAHA member status, by metro status (e.g., urban vs. rural), and by median area household income (MHHI).

So, if you are a high-touch, high-tech practice in a full-service facility with three veterinarians, a suburban location and the local community MHHI is $45,000-55,000, then you might observe that for a Complete Urinalysis charged at the 75th percentile fee, you may reference $39.05 for a three-doctor practice, $47 for a suburban practice, and $42.65 for an area with MHHI of $45,000-55,000. This, at a minimum, establishes a range for pricing your own fee for a Complete Urinalysis.

This book (TVFR) is extensive; it takes 528 pages to contain all of the detailed information about individual as well as some packaged procedures, discussion of mark-ups and more.

Dick Goebel, DVM, is senior associate of Simmons Great Lakes (www.simmonsinc.com), a practice brokerage, appraisal and consulting firm. He is immediate past president of VetPartners (formerly the Association of Veterinary Practice Management Consultants and Advisors). Goebel is special assistant to the Dean at Purdue University School of Veterinary Medicine where his responsibilities include practice management education for veterinary students and technician students, and leadership in special clinical and development projects.

Questions or comments? E-mail EconNews@VetPartners.org.

VetPartners is a professional organization consisting of members who consult to the veterinary profession and whose mission is to promote excellence and ethics in veterinary consulting and advising through continuing education, communication, collaboration, and collegiality and to establish and improve business practices and standards. For more information visit www.VetPartners.org

AAHA is the only organization that accredits animal hospitals throughout the U.S. and Canada. AAHA-accredited hospitals voluntarily choose to be evaluated on 900 quality standards that encompass all aspects of pet care — from patient care and pain management to team training and medical record keeping. Visit www.aahanet.org for more information.

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