At the 2012 American Association of Equine Practitioners (AAEP) annual convention in Anaheim, California, two complementary presentations gave attendees insights into the business challenges facing the equine veterinary profession, both today and in the future.
“61 Minutes” is presented annually during the business program as an overview of the past year in the areas of the economy, veterinary student challenges and opportunities, new grad affairs and technology. The panel presentation is hosted each year by Robert Magnus, DVM, MBA, Wisconsin Equine Clinic, Oconomowoc, WI; Kathleen Anderson, DVM, Equine Veterinary Care, Elkton, MD; and myself, Mike Pownall, DVM, McKee-Pownall Equine Services, Campbellsville, Ontario, Canada.
There were three main themes discussed during the hour-long session: the changes in the North American and global economy and their impact on equine veterinarians; student debt and comparatively low salaries that will limit the ability of young veterinarians to become practice owners; and how advancements in diagnostic tools and mobile technology will impact the way we practice veterinary medicine.
Presenting on “The Practice of the Future” were Eleanor Green, DVM, DACVIM, the Carl B. King Dean of Veterinary Medicine at Texas A&M University’s College of Veterinary Medicine & Biomedical Sciences; Travis Meredith, DVM, MBA DACT, Managing Partner, Axxiom–The Practice Impact Group; and Chris Ragland, the CEO of Animalytix, LLC.
They used data compiled from various organizations to present an overview of the state of equine veterinary medicine, also examining the trends that will impact the future of the profession. Although neither group of presenters knew the contents of the other group’s talks, the conclusions made by both groups about several areas were very similar.
Change or Die
“61 Minutes” used examples from the broader economy to argue that the business of equine veterinary medicine will have to change to survive, much like many other industries are changing their business models to prosper in these quickly changing times.
Magnus used the examples of veterinary pharmaceutical companies and distributors to show how those industries have increased earnings over the past few years through consolidation and acquisition. Conversely, equine veterinarians have generally suffered through decreased earnings and profitability over the same time period.
His point was that the equine veterinary business model is unchanged, while other industries are adapting to the new economies.
Meanwhile Ragland, using information from his company Animalytix, showed that pharmaceutical companies are facing challenges going forward as their portfolios show a decreased return on investment. Of concern to the equine industry is that the equine share of the animal health portfolios of the major pharmaceutical companies is in the 3-10% range and shrinking. In other words, there is little incentive for the pharmaceutical companies to develop new equine products since it is such a small share of the overall picture. It is better
for them to focus on companion or food animal medications since there is a bigger return on investment.
Green followed this up with recent information from equestrian organizations to show that all the major breeds and disciplines are showing marked decreases in breeding and youth participants. It seems that the writing is on the wall: The equine industry is going to shrink unless actions are taken to reverse that trend.
Demand for Veterinarians
Anderson, in her portion of “61 Minutes,” offered recent American Veterinary Medical Association (AVMA) statistics about student debt and new graduate employment. She noted that 47% of fourth-year students in 2012 had debts greater than $150,000, while the starting salary for companion animal and equine veterinarians dropped from 2011 levels.
There was good news: The AAEP career database showed twice as many job offerings in December 2012 as there were a year earlier. This was surprising considering reports that there is an oversupply of veterinarians in the marketplace due to the increasing enrollment at existing veterinary colleges and new veterinary schools opening soon across North America.
Green used studies from various federal and state organizations, as well as information from the AAEP, to show that there is not definitive proof that we are facing an oversupply of vets. For example, the AAEP reports that a high percentage of new graduates leave equine practice within five years of graduation. Furthermore, a recent survey conducted by the AAEP revealed a high level of job dissatisfaction among new graduates, with only 29% of respondents under the age of 30 indicating that they were “very happy” with their jobs, compared to 64% of equine practitioners over the age of 60 who responded favorably.
AVMA studies in 2011 reported that there is a need for 122 new equine veterinarians per year to maintain the current rate of practicing equine veterinarians, yet there were only 37 new equine veterinary jobs advertised last year. Of course, with the news that the equine industry is shrinking, the number of new equine veterinarians required might be downgraded from previous estimates.
What is apparent, though, is that the equine veterinary practice landscape is shifting very quickly, and that there is not a definitive answer as to whether the supply of new veterinarians in North America is sufficient or in excess.
Green noted that there are regional differences in supply and demand, giving the example that in Texas, the population growth is exceeding the supply of veterinarians. What we don’t know, however, is whether the new population expansion in Texas has proportionate horse or pet owners to justify the increasing number of new vet graduates.
Technology of Today and Tomorrow
In the technology section of “61 Minutes,” there were recent statistics that showed online shopping is gaining momentum. Meredith confirmed that fact during his presentation by showing statistics about online sales, which are expected to grow from 7% in 2011 to 9% by 2016. This will affect equine veterinarians because more of their clients will be shopping online for products they traditionally bought from vets.
On top of this is a proposed government regulation (HR 146) that will allow the Walmarts and Walgreens of the world to sell pet pharmaceuticals. They will not offer a full slate of pet and horse products, focusing instead on chronic-care pharmaceuticals such as ulcer medications for horses and flea and pain products for pets. Ragland expects that, over time, consumer pressure will force more manufacturers to sell their products online or OTC. That will mean veterinarians will be forced to write more prescriptions for their clients to fill elsewhere.
The general thought was that in the future of veterinary medicine, it looks like equine practitioners will become more like human physicians with regard to how they prescribe medications.
Student Debt and Practice Ownership
In light of the current state of student debt, there is a perception in the industry that newer veterinarians do not want to pursue practice ownership. Meredith noted that the current generation of graduating veterinarians is much more knowledgeable about business than past generations. For example, the Veterinary Business Management Association, a student veterinary business group, has 25% of current American veterinary students as members.
So along with their business acumen, new equine veterinarians have found that as prospective business owners they have easier access to borrowing opportunities, which means many are starting their own practices rather than buying existing ones.
There is the question of whether there is a correlation between the high job dissatisfaction that new graduates express and the lack of young veterinarians buying into practices. Why buy into a business in which one does not enjoy working?
During “61 Minutes,” the audience members were asked whether they thought their businesses would operate differently in two years. By a show of hands, a strong majority indicated that their businesses will not look the same in the near future.
Many of the conclusions from Magnus, Anderson and Pownall were shared by Green and Meredith and Ragland: We are facing an environment where our patient and client base is shrinking, student debt continues to escalate, job dissatisfaction is high among new graduates, clients are less dependent on veterinarians for prescribed medications, and pharmaceutical companies are offering fewer new medications for horses.
Some of the general suggestions for dealing with these challenges are for equine veterinarians to be open to new ways of doing business. That might include acquisitions of or mergers with other practices to help reduce expenses; development of niche markets; or through increased transparency and innovation to attract and retain new associates that want to buy into an existing business.
Marketing will need to be a focus for equine veterinary businesses. Practitioners must change to offer what the clients want, which often is not what veterinarians have offered historically. For example, the use of social media and online sales are two trends that are not going away, so today’s equine practitioners need to learn how to incorporate those tools into their business practices.
Finally, as an industry, we must work with other industry stakeholders to increase the attraction of the horse industry to new participants, re-engage past horse owners and increase the involvement with current horse owners.
There was a common sense of optimism among the presenters of “61 Minutes” and “The Practice of the Future” about the business prospects for equine veterinarians. Just because things are different doesn’t mean they are bad. Veterinarians who embrace change and evolve with their businesses will succeed, just like numerous other companies are doing in other industries.
Planning for the Future
Charlotte A. Lacroix, DVM, JD, spoke in the Wednesday business session at the 2012 AAEP Convention. Her discussions in the “Planning for the Future” session covered a wide array of topics of benefit to the equine practitioner, whether a practice owner or a recent graduate.
Here are some bullet points from her presentation.
· Must be signed to be enforceable
· Must be clear to avoid different interpretations
· Must have legal counsel involved
· Must include an employee non-compete if you are the employer
· Must contain an employee confidentiality agreement if you are the employer
Most Misunderstandings with Associates Involve:
· Work hours and environment
· Compensation issues (including type of calculation)
· Benefit issues
· Non-compete agreements
· “Promises” to buy into the practice
Bad Employer Outcomes Happen When You:
· Don’t have a non-compete with an associate
· Agree to pay benefits, but rely on the employee to obtain his or her own malpractice and license insurance
Bad Employee Outcomes Happen When You:
· Sign a non-compete thinking it is unenforceable (Lacroix said courts are “hostile” to non-competes, but it is a costly and timely battle.)
· Have a work schedule that isn’t specified
· Agree to work 40 hours in a five-day week and end up working 70 hours in a six-day week
· Work for the verbal promise you can have the opportunity to buy into the practice
Negotiation of Contracts and Agreements
“In business you don’t get what you deserve, you get what you negotiate,” Lacroix stated.
Understand what the other side wants before you create the document, but YOU (or your attorneys) create the document.
During negotiations, focus on solutions, not arguments.
“The trick of getting what you want is knowing what you can get,” Lacroix said.
Employers cannot prohibit competition, but they can protect their trade areas in most states.
The length of the non-compete is usually based on time of employment up to a cap of two to three years.
If a former employee starts competing against you, it’s necessary to file a “cease and desist” immediately and get an injunction.
To soften the non-compete, consider it being null and void if:
· Employer breaches the agreement
· Employer terminates “without cause”
· Employee terminates “with cause”
· Employer fails to let the associate buy into the practice if that was agreed upon
· If the business is sold, the non-compete needs to be transferred to the buyer with the sale.
What Are Benefits Worth?
Lacroix quoted JAVMA figures, saying the value/year of benefits was about 30%, meaning veterinary employers cannot afford to allocate more than 28-32% of the collected income generated by an associate veterinarian to pay his or her salary and benefits.
Benefits can include:
· CE training (2-3 days at a cost of $700-$1,000)
“The law protects against injustice, not ignorance,” said Lacroix.—By Kimberly S. Brown
Planning for the Future Part 2
The old saying goes, “If you don’t know where you’re going, you’ll end up somewhere else.” Which means that if you don’t plan for your future, then your future probably isn’t going to be as rosy as you might be picturing it.
Understanding Your Profitability
James E. Guenther, DVM, MBA, MHA, CVPM, AVA, gave a rather startling statistic at the start of his presentation during the 2013 AAEP Convention: “I would bet less than 30% of veterinarians have a written plan for the future.”
Unfortunately, he said, that failure to plan for the future often means that an equine veterinarian’s practice—what is usually considered the vet’s biggest asset—has little to no value when the veterinarian decides to sell.
One of the reasons that new graduates or younger veterinarians who graduated with large debt loads are more likely to start a practice than buy into or buy out a practice is that they can pay off their debts quicker as the owner. “There are a lot of graduates or older veterinarians who are starting their own practices,” he said.
Guenther challenged veterinarians to understand their true profitability in order to plan for their future. Profitability can be measured in several ways, but the bottom line is that your profit is what remains after all “fair and typical expenses are subtracted from the gross revenues.”
Seems simple enough, right? So how can you affect your profitability? Guenther said there are only two ways: reduce expenses or increase revenues.
Guenther noted that there are “only four major expenses that you can tweak that can improve the profit for your practice: rent, professional compensation, nonprofessional compensation and inventory.”
He recommends taking your Income Statement (Profit and Loss Statement or P&L Statement) and putting it in an Excel spreadsheet or a program such as Quickbooks.“The spreadsheet will allow you to use other columns to transfer or adjust a number to a fair or established benchmark.”
Guenther talked about using established benchmarks or benchmarking your progress. “Benchmark” is a word that can be used as a noun or a verb. As a noun, it means a standard or point of reference against which things may be compared or assessed. As a verb, it means to evaluate or check (something) by comparison with a standard (as in “We are benchmarking our performance against external criteria.”).
He used several benchmarks from the AVMA as well as some from his own experience of working with veterinary practices in his examples.
Guenther also noted that dividing up your areas of revenue into profit centers can be very enlightening and allow you to better monetize your time and assets. The example he gave was about your practice vehicle. “Wouldn’t it be nice if your truck was making you money?” he asked.
Once you set up your chart of expenses and revenues for the profit center, it’s easy on your P & L sheet to compare that profit center month-to-month and year-to-date (YTD), and compare the current YTD to the previous year(s). This means you can see whether, in April of this year, you are making more or less profit on the practice vehicle than you did in April of last year (you are benchmarking against last April). And whether the comparison is good or bad, you can look at the numbers and determine why you are getting that result.
If you are not making a profit on your practice vehicle, why not? Let your records answer that question, he said.
“Think of your entire practice as a patient, and do a wellness check each month,” advised Guenther. That wellness check is looking at your P&L statement and using benchmarks to see if your numbers are where they should be. It’s no different than checking your cholesterol or blood pressure to determine what it is and whether those numbers are going up or down, then taking action to make the numbers better.
Besides your practice vehicle, another missed profit area, according to Guenther, is when charges are not billed to the client. He noted that, “IDEXX several years ago discovered that the average practice missed nearly 20% of the charges for laboratory services.”
Guenther said at first he found that hard to believe, but, “Having checked practices’ invoices and fee schedules, the answer is, yes, it does happen.”
He cited the example of a practice owner or associate not having current charges for services (resulting in underbilling) or not recording a charge at all for a fecal or Coggins test. He said this happens more often than it should in equine practices.
He said this type of “plugging holes” in lost revenue (i.e., discovering the problems and addressing them) can result in improved profitability for the practice without raising rates or cutting expenses.
Guenther asked the audience members what they did if they discovered they had missed charging for a service. Many of those who spoke up admitted they did nothing. Guenther recommended talking to the client and explaining the undercharge or the mistake of leaving the charge off the bill entirely. In a vast majority of cases, he said, the client will pay the bill.
He said the ones who responded with, “Tough luck, doc,” are probably not clients you want to keep.
Along those same lines, reducing accounts receivable is an important way to improve your practice’s profitability. The client who responded with “Tough luck, doc,” is probably also the one who pays you 30-60 days late.
One way to avoid that scenario is to get your money when services are rendered, or shortly thereafter. Don’t wait 30 days to bill.
“Collect at the time of service, or have daily or weekly billing,” advised Guenther. He said some veterinarians send electronic bills within 24 hours of providing services.
Missing products (not being able to account for all inventory) is another way practices hurt their profitability. In fact, Guenther said, “the area in most practices that can be streamlined to help improve the bottom line is inventory.”
He said most practices have a hard time managing inventory, and if not managed properly, “it can cost you a lot of money.”
He gave this example: If you have a drug and medical expense that is 25%, and a published benchmark for that expense is 15%, then you have 10% additional monies you should be able bring to the bottom line with a well-managed inventory system.
He said one of the keys of a successful inventory program is a locked pharmacy with requisition slips for products. He said a locked pharmacy can be as simple as a closet or cabinet that has a lock (that is used) and a sign-out sheet attached to the door, or as complicated as an electronic scanning and automated inventory tracking system.
Guenther said equine veterinarians should think of inventory as dollars on the shelves or in the truck. Inventory should be monitored with the same intensity as money in a bank account or cash in the register.
“The second most-important piece (of the successful inventory program) is tracking and accounting for all inventory items from ordering to selling to invoicing the client,” said Guenther.
He went in-depth to discuss turnover rate of products, indicating that the quicker you can turn over a product, the less it costs you. Ideally the veterinarian wants to buy the product, sell the product, and pay that product off in 30 days. The cost of inventory, he said, is causing some practices to use online pharmacies to avoid purchase and stocking of most items.
Know the Value of Your Practice
Among the other topics Guenther discussed when talking about planning for your future and understanding your profitability was the need to know the value of your practice, then working to strengthen that value.
“Valuations are an art form and not merely a plug-n-chug program,” noted Guenther.
He closed by stating that most exit planners say it takes at least three to five years to have the practice “in a strong position to garner the most for the business.”—Kimberly S. Brown
A full article on the topic of “Planning for the Future” can be found in the 2012 AAEP Convention Proceedings.