So … How Much Is That Gonna Cost Me, Doc?

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Credit: Dusty Perin

Credit: Dusty Perin

Charging appropriate fees is the foundation of profitability, but veterinarians commonly struggle with setting fees for the services they provide. Because veterinary education has traditionally been focused almost exclusively on the acquisition of medical knowledge, understanding of basic business skills such as setting of fees is often limited. One of the major reasons that setting prices can be difficult is that there are strict laws governing the process. These laws specifically prevent the discussion of prices between competitors, so consequently there is limited information available about what constitutes a fair price. 

According to the Federal Trade Commission’s website, “Price fixing is an agreement (written, verbal or inferred from conduct) among competitors that raises, lowers or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.”

So what’s a veterinarian to do? Although many have utilized “ghost shoppers” to call other practices to investigate their competitors’ fees, this is a blunt tool and provides limited information on a small number of services. It is, however, a good way to find out the current prices of “shopped” items such as Coggins tests. You might also hear this information from clients; they might report what another practice charged their friends. Some can even bring out other practices’ invoices to show you their horses’ previous medical histories. These are legitimate ways to investigate the current fee environment of your region. What you must never do is get together with a vet from another practice and collaborate on what fees you both will charge. This is a serious violation of anti-trust laws.

Veterinarians who belong to management study groups such as the VMG (Veterinary Management Group) and groups organized by the VSG (Veterinary Study Groups) periodically perform fee surveys to observe the often remarkable regional differences in prices. As these groups are deliberately made up of non-competitor practices located a considerable distance from one another, these activities do not violate the statutes. Robust discussion often ensues among members when there are wide disparities in prices, illuminating the reasons for the pricing choices that were made.

Why are there such regional differences in prices? Different areas often have different costs of living. Housing costs, food prices and taxes can be quite variable, and wages of hourly workers generally follow. When these costs are low, prices for veterinary services also tend to be low. The economic principle of supply and demand also applies: If there are lots of equine veterinarians competing for a limited number of clients, there is generally downward pressure on prices. In areas where there are lots of horses but few practitioners specializing in their specific needs, higher prices are supported.

Pricing Starts with You!

The first step in setting fees for your practice is to adopt a methodology to direct you. Because the most valuable asset you own is the knowledge between your ears, deciding on your hourly professional fee is critical. All fees will flow from this figure. Depending on the region in which you practice and the cost of your fixed expenses, this fee may range between $150 and $500 per hour.

For the purposes of this discussion, we will use a round figure in the middle of this range, $300. This means that your time is worth $5 per minute. Obviously you probably spend a lot of time during the day on things unrelated to actual clinical examinations and treatment, and the time spent interpreting and reporting diagnostic testing counts in your tally.

Understanding how valuable your time is will be the first step in encouraging you to delegate less critical things to others. If you work as an ambulatory practitioner in a typical 10- to 12-hour day, more than likely you have one to two hours in the office, three to four hours of driving time, and four to six hours of actual time with patients. Although you can do a tremendous amount of communication while driving and undoubtedly do many related tasks while you are in the office, the value for these tasks should be wrapped into the fees for the services that inspire it. This means that the four to six hours you actually have to touch patients should generate a minimum of between $1,200 and $1,800 (4 x $300, 6 x $300) in revenue.

If you work five days a week for 50 weeks of the year, your potential production is $300,000-$450,000. If you are fortunate enough to have many patients in a small radius, or at the same barn, your potential will increase markedly because you can decrease your travel time and increase your clinical time.

Example of Pricing

For each service that you perform, think about the components that make up that task. For instance, a client calls your office to schedule a Coggins test. Your receptionist spends five minutes on the call.

On the day of the service, you draw the blood sample, label it properly, take photographs of the horse and note its breed, color, sex and markings. Back at the office, a staff member (or you, if you are a solo practitioner without staff) spends 10 minutes to upload your photos and enter the horse’s information into a program like Global Vetlink. The blood is packaged up for shipping to—or pick-up by—the lab, which takes two minutes.

A few days later, your staff downloads the results to print and mail, or e-mails the results to the client. This takes five minutes. The lab charges you $10 for every Coggins it processes, which includes shipping or pick-up.

So how would you determine an appropriate fee for the Coggins test? Let’s say staff members make $15/hour. When you add in the cost of their benefits (health insurance, etc.), payroll taxes and other fees, they likely cost you double their hourly wage, or $30/hour. Employers are required to pay taxes and fees for each of their employees, including Social Security, Medicare, state and federal unemployment tax, and Worker Compensation insurance. If you have part-time help with no benefits, their tax and other fees cost you about 10% of their wage, or an additional $1.50 per hour. For the purpose of this discussion, we will assume you have a full-time employee that costs you $0.50 a minute.

After accounting for all of these steps, the total fee should rationally be $46, but there is one critical step left. Every business owner needs to make a profit.

All the funds you have invested to buy shares in a practice or equipment when you started your own business could have been invested in the stock market or Treasury bills yielding a return. Owning a practice is no different. You should build profit into every service you offer. Profits in equine practices have decreased in the last decade but expecting a return of 5% on your investment is not unreasonable. Adding 5% profit brings the fee for a Coggins to $48.30.

“Whoa!” you’re thinking. “How can I charge so much for a Coggins? Next Door Equine charges half that much!” Using the Coggins test as an example allows us to examine the concept of commodity services, which are those things for which clients “shop” or call different practices, seeking the lowest price. Typical commodity services in equine practice include Coggins tests and vaccines. In areas with lots of reproductive work on Thoroughbreds, rectal palpations with ultrasound are a commodity service. In order to keep your commodity service prices competitive in your marketplace, you might need to lose money on them. But you can only afford to do this if you make up for these losses on other services. If your practice is heavily weighted toward commodity services, and you price them to be the lowest in your market, you will have significant financial struggles.

Services that are highly valued by clients can support higher prices. These include things that clients cannot do themselves (e.g., suturing a laceration) or care a lot about (e.g., lameness diagnosis and treatment). The 2012 AAEP Owner\Trainer Veterinary Services Survey named emergency services as the most important offering that clients seek when choosing a vet. Consequently, emergency services can be priced at a premium.

Take-Home Message

Using these principles to address your fee structure will help you ensure the profitability and the successful future of your practice. Take the time to analyze your menu of services and price them appropriately; your future depends on it!