The Fifth AVMA Economic Summit convened in October 2017 in Chicago with almost 200 veterinarians and industry members in attendance.
Michael Dicks, PhD, director of the AVMA’s Economics Division, kicked off the program with his annual macro-economic forecast. Dicks recommended regular review of the Conference Board Leading Economic Index, found at www.conference-board.org, to predict future recessionary changes in economic performance in the US. The current LEI indicates a strong likelihood of 8-18 months of continued economic expansion, he reported.
When looking at the LEI, Dicks stated that a consistent downturn in the index predicts a coming recession. In addition, when the rate of change in growth slows (observed as a flatter line), he added, a downturn in the LEI is likely to follow.
Examination of multiple indices, including the Federal Reserve LEI, the Congressional Budget Office forecasting of Gross Domestic Product growth rates, average weekly hours of employees in several sectors, unemployment claims, new orders for goods, new housing starts, the Standard & Poor’s 500 Stock index, the trend of interest rate spread between the 10-year and the 3-Month Treasury bills, real median household income, capacity utilization, and consumer confidence revealed variable predictions of future economic performance.
However, the overall trend points to moderate economic growth for 12-18 months.
In summary, Dicks recommended holding off on making big purchases, if possible, because prices are likely to fall when growth slows. He also suggested that building or remodeling a facility now is unwise, as the cost of building supplies has been impacted by the high demand set in motion by the hurricanes that devastated Texas and Florida, and the wildfires that burned communities in Californi. Lastly, he suggested that the strong performance of the stock market in 2017 is likely to end with a correction, and counseled attendees to take necessary action to limit their risk.
Lisa Greenhill, MPA, EdD, presented data about applicants to veterinary schools. She reported that the applicant to seat ratio has increased slightly to 1.7, after four years of a 1.6 ratio. Male applicants have decreased to 17.4% of the total in 2017 from 18.7% in 2013. Minority applicants now make up almost 25% of the total, a needed improvement.
Although applicants are increasingly aware of the costs of attendance prior to matriculation, they continue to have a financial disconnect. Astoundingly, seven applicants indicated they were willing to pay more than $1 million for a veterinary education, and 15.2% of applicants were willing to pay more than $300K for their education. Greenhill noted that more affluent applicants are dominating the applicant pool.
As state support of veterinary schools has diminished, veterinary colleges are increasing the number of seats to increase revenue, and 50% of current seats are for non-residents, and have higher tuition rates.
Continuing the examination of veterinary education, Bridgette Bain, PhD, reported that there were 14,243 U.S. graduates between 2013-2017, of which 1.5% entered equine practice. This represents a slow decline in percentage over the last 10 years.
Among all veterinary school graduates, she stated that males now receive only 4% more than females in starting salary amounts compared to 9% more just five years ago, after controlling for location and hours worked. Although improvement has been noted, this disparity is particularly concerning because on average, female veterinary graduates have higher educational debt, and thus higher debt to income ratios (DIR). Bain reported that in 2017 the average DIR was 1.8 for US female graduates in contrast to 1.6 for US male graduates. The average DIR for foreign graduates was 3.4, and alarmingly, 58.9% of 2017 foreign graduates have a DIR of 4.0 or higher.
Dicks then spoke about strategies to address student debt, including preventing debt amounts that exceed the total cost of attending veterinary school, providing loans with no interest accrual before graduation, decreasing the cost of education by 10%, and increasing starting salaries. He noted that tuition and fees rose 14.5% from 2015 to 2017, and student numbers rose 2%, from 2,882 to 2,942, but that the number of students with no educational debt rose 55%, perhaps due to family support of more affluent students.
To close the first day’s session, Gina Lake of the AVMA Governmental Relations division, and Kevin Cain, the AAVMC Director of Governmental Affairs, spoke about Congressional action and the affordability of veterinary education. They highlighted the importance of reauthorization of the Higher Education Act, which faces significant restructuring efforts by Republicans. Among changes being proposed, according to the speakers, is a cap on annual borrowing of $8,000 for undergraduates and $30,000 for graduate and professional students, a cap on cumulative borrowing of $37,000 for undergraduates and $150,000 for graduate and professional students, eliminating or curtailing the Public Service Loan Forgiveness Program, and eliminating Perkins loans, a program which expired on September 30, 2017.
Democrats are focusing their efforts on eliminating origination fees, which range from 1-4% of the loan amount; lowering interest rate caps, extending the Perkins loan program, establishing a federal refinancing program, and modifying or expanding the Public Service Loan Forgiveness Program.
Finances of Practice
The second day began with Terry O’Neill CPA giving a comprehensive look at the financial metrics of veterinary practices. Of use to equine practice owners was the observation that practice owners need a compensation strategy, especially in these times of low unemployment that create upward pressure on wages. Each position should have a salary range, and for each $100 of payroll, practices should budget an additional $15 for payroll taxes and benefits.
He also shared that one can estimate the cost of gaining a new client by dividing the annual marketing expense by the number of new clients.
Lastly, O’Neill reminded the audience that small changes in the percentages of expenses can translate to fairly large sums that can fall to the bottom line, increasing profit and likewise, practice value.
Lynn Dodge of Colorado State University presented the DuPont model of assessing business success, a technique which uses operating profit margin, asset turnover ratio, and leverage to calculate the return on equity. This method can illustrate whether practices are reinvesting profits, utilizing them to pay down practice debt, or taking them out as owner distributions of cash.
Interesting facts about the income implications of the changing demographic in the veterinary profession were presented by Fred Ouedraogo PhD. His data show that average income has fallen across all practice types. Equine practice average income was the highest among practice types in 1999, at $125,000, but in 2015 had fallen to $85,000. Across all practice types, average income is decreasing. According to Ouedraogo, the primary factors affecting these income trends are the profession’s age distribution, gender, ownership status and practice type.
The typical age earning profile, which describes the growth of earnings over the life of a veterinarian, shows significant differences between males and females. After very similar first five years, females’ earning curves flatten from the ages of 31 to 47 years, while males’ climb. This might be due to child-bearing and child-raising. When added to data signaling the rapid feminization of the profession, the decrease in average salaries can be readily explained.
Charlotte Hansen, MSc, presented the net present value of the DVM degree, which differs considerably between males and females. Essentially, after calculating the cost of obtaining the DVM degree and the resultant salaries to age 65, these figures are compared to those that follow earning only a Bachelor’s degree. For females, the net present value of the DVM degree is $400,000 more than that of a BS. For males in 2017, the DVM is essentially equal in value to the BS. This is because, on average, males realize only $21,132 additional salary annually with a DVM versus a BS.
The AVMA Economics division has created a plethora of helpful resources at www.avma.org/PracticeManagement/BusinessIssues/Pages/default.aspx to help practitioners learn more about the business of practice. The ongoing research undertaken by the division and the annual AVMA Economics Summit are increasing financial literacy within our profession and providing strong leadership for success.