Fritz Wood, a renowned animal health consultant and advisor, joins Dr. Andy Roark to talk about pricing in veterinary medicine. Are increasing prices justified by inflationary pressures and rising costs of living? Do pet owners agree and/or accept this? What are the potential benefits and pitfalls of veterinary clinics raising prices? Should they do fewer large raises or more frequent smaller raises? The discussion ends with a conversation about the impact of corporate medicine and the coming future of telemedicine.
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LINKS
Fritz Wood Website: https://www.fritzwood.com/
Uncharted Veterinary Conference: https://unchartedvet.com/uvc-april-2023/
AAHA Veterinary Fee Reference (2020 edition): https://amzn.to/3W2lWeU
Profitsolver: https://profitsolver.com/
Dr. Andy Roark Exam Room Communication Tool Box Course: https://drandyroark.com/on-demand-staff-training/
Dr. Andy Roark Swag: drandyroark.com/shop
All Links: linktr.ee/DrAndyRoark
Links to Amazon.com are affiliate links and help support the show. (They’re also much smaller than normal links and easier to copy when typing up show notes!)
ABOUT OUR GUEST
Fritz Wood owns and operates an animal health consulting practice in Kansas City. He’s focused on the business of veterinary medicine for more than 30 years, conducting important research on veterinary productivity and attributes of high-performing practices. Fritz is an author, speaker, business consultant, and key opinion leader. He was on the Editorial Advisory Board of Veterinary Economics, Veterinary Team Brief, and Today’s Veterinary Business. He’s authored scores of articles related to the business of veterinary medicine and personal finance. He often presents at local, state, regional, national and international veterinary conferences. Fritz holds Bachelor of Science degrees in Accounting and Business Administration from the University of Kansas (1986). For decades, he was actively licensed as a Certified Public Accountant and Certified Financial Planner. Fritz is also affiliated with a personal financial planning, investment management, and 401(k) practice, where they help people reach their lifetime goals. His pre-vet experience included nine years as a management consultant with a top global consultancy.
EPISODE TRANSCRIPT
This podcast transcript is made possible thanks to a generous gift from Banfield Pet Hospital, which is striving to increase accessibility and inclusivity across the veterinary profession. Click here to learn more about Equity, Inclusion & Diversity at Banfield.
Dr. Andy Roark:
Welcome everybody to the Cone of Shame veterinarian podcast. I am your host, Dr. Andy Roark. I am here with my good friend, Fritz Wood. Fritz is an industry advisor and observer. He does a ton of personal finance with veterinarians and I’m talking to him about pricing strategy in the veterinary industry. How do veterinary clinics set prices? Are we doing what we can to keep care affordable? What are the benefits and the drawbacks of raising prices? How much elasticity is there in these prices, meaning how much more competitors take or what are they going to say when we do raise prices? And how do we get the staff onboard and is that an issue or something to be concerned about? Spoiler alert, yes it is.
Anyway, it is a really good, very high level discussion about pricing and medicine. It’s not about how you set your prices in your clinic, it’s more about what the prices of medicine mean and what the ripple effects are from changing them and from not changing them in an inflationary environment. So anyway, guys, that’s what we get into. It is a really good discussion, sprawling all across our profession. We talk about corporations coming in and what that means. We talk about virtual care and just all sorts of stuff. And so anyway, it is really, really interesting conversation. Let’s get into it.
Kelsey Beth Carpenter:
(Singing) This is your show. We’re glad you’re here. We want to help you in your veterinary career. Welcome to the Cone of Shame with Dr. Andy Roark.
Dr. Andy Roark:
Welcome to the podcast. Fritz Wood, thanks for being here, my friend.
Fritz Wood:
I appreciate the opportunity.
Dr. Andy Roark:
Oh man. For those who don’t know you, you have been a CPA, certified financial planner, you are an industry advisor and observer. You work with a lot of veterinarians on personal finance, things like that. You have been a mentor for me throughout my entire career. I have always looked up to you. You’ve given me some of the best advice that I’ve gotten in my career. I’m not kidding when I say that. I love having you here. I love getting a chance to talk with you. You write for Today’s Veterinary Business as well as a bunch of other outlets and everything. And I always look through and check out your column when it comes in. And there was something you wrote about recently, you wrote about the upsides and pitfalls of adjusting prices.
And I’ve been thinking a lot about this. So I’m looking at inflationary economy, I’m looking at upward pressure to raise wages in the practice, I look at keeping care affordable for pet owners. I just came out of the Uncharted Veterinary Practice Owner Summit and that was a concern I heard again and again is affordability of care. “My staff can’t afford the care that we provide to our clients and that bothers me,” and I listen to a lot of those things. And so I wanted to get in with you and just start to get into vet pricing and where the prices come from and just start at that level and then just start to play around with what price setting looks like in our industry. Is that okay to start out with?
Fritz Wood:
You bet. And I appreciate the very kind words, Andy and I am flattered and honored to be here and look forward to contributing and hopefully, have a little value. And I think this topic of professional fees, it’s probably always timely and it’s probably always germane. Before we sort of dive into any detail, I found this interesting, you might find this interesting, in preparation for today, I sort of looked back at presentations I had given on the topic of professional fees. And the most recent one was four and a half years ago, so not recent. And the one before that was six years before that. So I’ve literally talked probably about professional fees twice maybe in the last decade. And then I thought, “Well, that’s kind of odd because I used to talk about it all the time.”
So if we start at the 50,000-foot level, what happened? The accounting and consulting firm, KPMG came out with a study commonly called the Mega Study. It came out in 1999 and one of the conclusions was that veterinary fees had not even kept up with inflation during the 1970s, the 1980s, and the 1990s. Okay, so it is fair to say that that raised a big flag in the profession. And my observation and anecdotal observation is that subsequent to that, so in the 22 years since then, or 24 years since then, veterinary fees have riven at about twice the rate of inflation over that time period. So inflation had been going in the first two decades of this century at about 2%, veterinary fees had increased about 4% or even more. So veterinarians, the profession clearly got this message loud and clear, “Oh my gosh, we’re not even keeping up with inflation.”
But I would argue that there was sort of a pendulum swung rapidly and perhaps too far and too fast in the other direction. And I agree with you completely. Let’s start at the 50,000-foot level, I agree with you that there’s an affordability problem and increasingly so, right? I mean I’ve read things that indicate the cost of veterinary care is pretty comfortable for people, let’s say, households making a hundred thousand dollars or more a year. Well, median household income’s about $65,000 so that’s a problem. And we’re not going to solve this today. But I would argue the problem with that is the model we’ve created, let’s just round numbers say 30,000 veterinary hospitals is a pretty expensive way to deliver veterinary medical care. In other words, if you design the profession from scratch to deliver care cost efficiently, it wouldn’t look at all like this.
I mean, for example, there are 6,000 or five times fewer human hospitals than there are animal hospitals. There’s about 6,000 compared to 30,000 animal hospitals. There’s more humans than there are pets. So we’ve got all these really highly specialized, highly capable hospitals that are not used near capacity. And that’s an expensive way to deliver veterinary care and nobody’s going to change that overnight. So we got to talk about professional fees because veterinary medicine from a business standpoint, I would characterize it as a gigantically large number of relatively small dollar transactions. If you take a clinic and you say, “Okay, how many transactions were in that clinic last year?” And then you divide it by the number of doctors, full-time equivalent doctors, it’s going to be 4,000 or 5,000 transactions per doctor per year. And that doesn’t mean you lay your hands on 5,000 animals or talk to 5,000 clients, but some of those are coming in for medication repurchases and things like that.
But it’s a business of a hugely large number of transactions at a relatively low dollar amount. So small changes to the fee structure have a large impact on the business because of the number of transactions. So that’s where we are, where we have been. I mean I’m hearing people struggle with the same thing. There is an affordability issue, the people at the front desk are hearing it all the time. Clearly this notion of inflation… I just saw today, the most recent numbers are 7%. So everyone is having a larger percentage of their family budget or household budget necessarily allocated to things like utilities or energy, gas for their cars-
Dr. Andy Roark:
The groceries, gas.
Fritz Wood:
Food at the grocery store and household income’s a zero-sum game. So if more gets allocated to these categories, less is available here. And I was just looking at some charts today in preparation for this. And basically business exploded from about June of 2020 for the next year. That was the nadir, was June of 2020. And then from there, the next 12 months through June of ’21, things just shot through the roof. And then for the last six quarters since then, there’s been a marked and decided decline in client visits and number of transactions. It started again in about the summer of 2021, and inflation began to pick up hugely about the first quarter of 2021. So I don’t think it’s a coincidence that as inflation began to rage, transactions, client visits began to decline. And guess what happens when you increase fees? You should absolutely expect fewer transactions, right?
Dr. Andy Roark:
Yeah.
Fritz Wood:
And we could talk more about what’s called price elasticity and what we know about that in the veterinary profession. But it’s kind of like you squeeze the balloon, it’s not taking up space there anymore, but that air went somewhere else and it’s still in the balloon, just changed places.
Dr. Andy Roark:
Yeah. Do you think that rising prices in vet clinics have played a big part in the six quarters that we’ve seen of declining number of transactions? Do you think there’s other factors at play besides that?
Fritz Wood:
No, I think there’s a host of factors that have little or nothing to do with the fact that we’ve raised fees, right? I mean, I don’t think I can draw that decline. In other words, fees have increased continuously. This isn’t just a matter that happened in the last six quarters, they have increased continuously. I think it was the inflation that kicked off. So of the six quarters where things have declined, four of those, we were comparing against a period before that was really abnormally inflated. So we would expect it to be back to normal. But then the last two, we’ve lapped that now. And so the last two quarters, we’re looking at results from a period that had already been in decline. And it’s going further. I mean I think visits, they’re off 3% or something like that, 3 or 4%.
Dr. Andy Roark:
Yeah.
Fritz Wood:
So here’s kind of the way I think we’re off. Transactions are down this year 3 or 4%, veterinary clinics are reporting revenues up about 4%. So that’s a 7% difference. So my guess is that’s the fee increase, right? That’s 7% fee increase. So we’re down three in visits, but we’re up four total. Well, that was the 7% increase in professional fees. I’m assuming, by the way, for the purpose of this conversation that we’re only talking about professional fees. I think implicit in this conversation has to be that people have good controls in their clinics, such that when the prices of products or inventory items change, that is immediately reflected in a change of their prices. In other words, they’ve got control over their inventory to make sure that supplier or manufacturer increase in prices are passed along immediately and they will. I mean every pharma company is going to increase the price of every product, every year. You can bank on that. So that needs to be mechanical in the clinic and automated with the practice management system.
Dr. Andy Roark:
Speaking of inventory, so staying on this topic, do you see inventory revenue decreasing in practices and how does that affect the prices in clinics, right? So I guess I’ve really sort of wrestled with this a little bit. It’s been a perception of mine that more and more pharmacy businesses has left the practice to go online to Chewy or Amazon or wherever. Does that increase elasticity for prices for diagnostics or for your physical exam? It’s never made sense to me the idea that we would run a practice and it’s built on this product model, which time machine, if you’re going back, please set that up differently. But unless somebody does that, that’s what our business has been built on. It was we sell vaccines, we sell products instead of traditionally we sell our expertise like an accountant or a financial advisor or something like that.
And so it’s never made sense to me, I guess, if you see products leaving the practices. It makes sense to me that that revenue has to come from somewhere, it’s going to come from our intellectual property in our services that way. Do you see that, I guess as I’m saying, as, first of all, valid? Do you see inventory transactions leaving practices? And when you do, does that leave the ability to raise prices on the other services that we keep in the practice?
Fritz Wood:
Yeah, I think there’s several questions in there. I mean, I think the first is people have predicted the demise of the pharmacy as long as I’ve been working in the profession and it just has not happened yet. When I read the financial or the veterinary press, I would be led to believe that the pharmacy is completely being crushed by the competition online, let’s say. The problem is when I look at sort of data, when I look at the facts, when I look at tax returns, when I look at financial statements, what I don’t see is a marked decline in the pharmacy, what I don’t see is robust growth. But more and more, I’m seeing clinics choosing to be price competitive in the pharmacy with alternatives the consumer has elsewhere, largely because they don’t want to appear to be guilty of what PetMeds accused them for so long, just fleeing the client.
It’s like, “Hey, you can buy it here, you can buy it there at the same price,” and that still leaves a healthy enough margin. So I would not abandon the pharmacy just yet. I think there’s still great opportunities there to improve compliance, which is one of the things that you might do in lieu of price increases. Because that’s one of the things I hope we talk a minute about is what are things you might consider instead of price increases despite the fact I think fees do need to keep up. I mean let’s face it, the bottom line is the biggest expense in a veterinary clinic by far, bar none is labor. It’s probably consuming 40% of gross income, maybe more. And I believe, and I think most veterinary practice owners believe that people deserve to at least not fall behind to inflation.
I mean I think it’s a moral issue. I mean when I used to work at the veterinary schools, I told them that build into your contract, and this is not even negotiable, cost of living increases. So you simply don’t fall behind. And that’s not a reward of any kind. That’s just a, “Hey, we stay even with last year.” But you know what, if I’m making a hundred thousand dollars a year and inflation’s 8%, or if I’m a technician making $50,000 a year and inflation’s 8%, I need to make $4,000 more or $8,000 more next year just to make the same amount, just to buy the same number of gallons of gasoline or go to the grocery store the same number of times. And so it’s almost a morality or fairness issue to me.
So if we say, “Okay, we’ve got this huge expense that’s non-negotiable, it’s critical to your success. If these people abandon, you got no business left,” we got to do everything in our power to try to retain them and one of those is through fair and reasonable compensation that, to my mind, at least increase with the level of inflation. And look, I’ll also tell you obviously there are veterinarians that I’ve seen, practice managers, that use professional fees as a cop out, a quick fix, “Let’s just hit it with that dopamine.” And what you tend to have in those kind of clinic, in other words, without changing anything at all about the client experience, let’s say, or adding value in any other areas, and I think if you’re charging dramatically more than what you were five or 10 years ago, and you probably are and you’re not delivering a substantially different and better experience, then I think you probably are in harm’s way.
I think client defections, you should expect. I don’t think it’s just a one-way street where you can hit the button over here and across the board and these fees go up and it produces a lower… That may work for a year. But in year two and three and five, I’m thinking your results are going to come back down to earth because you’re going to… Nothing more important to a clinic than client retention. All the data in the world show clients come back more often, they spend more, their pets are getting older. But they defect because they don’t feel like they’re getting a good value.
Dr. Andy Roark:
I need you to square this up for me, but here’s what I’m hearing you say and I want to make sure, so we’re talking about cost of living increases and we say inflation goes up… Let’s keep the numbers easy and say 5%. So the inflation goes up 5% a year. For my tech who’s making $50,000, she needs to make $2,500 more this year than last year to buy the same amount of gas and put the same groceries on the table and all that makes sense to me. It sounds like you’re also saying that while my tech expects a 5% raise to keep up with inflation, you don’t think the pet owners expect to pay 5% more so that I can pay my tech 5% more just because another year has gone by? Is that what you’re saying?
Fritz Wood:
Not the first part exactly. The second part, I think, whenever any of us leave a place of business, including pet owners leaving a veterinary clinic, I think you got three things that if I asked you a question, you’d be able to answer them immediately. Question number one, did you get your money’s worth? Or in other words, was it a good value? Question number two, are you ever coming back? Question number three, would you tell your buddies about this place? And you just know intuitively. Now what we know about veterinary fees, most people are going to find disagreeable because they’re not going to believe it, but if you think very long from a consumer’s perspective about veterinary care, it is two things. It is purchased infrequently and it’s a relatively small dollar amount. So the fact of the matter is people have no idea what they paid last time.
Dr. Andy Roark:
What do you mean by that?
Fritz Wood:
You might only have done it once, but if it was a house and you signed a big mortgage, you probably remember what you paid for that house, doesn’t matter how long ago it was, right? If you buy gasoline, you probably know what the price of gas is, not because it’s a huge expense, but you buy it all the time, like a loaf of bread or gallon of milk, right? Veterinary care falls right smack in the middle. It’s not purchased frequently, nor is it a huge dollar. It’s not a life changing dollar amount. And we did some just fun accident interviews at clinics a long time ago and just ask people, “Hey, just out of curiosity, what did you spend last time you were here?” And frankly, people don’t want to answer that question because they don’t know.
And if you force them to answer, they’ll end up guessing about the same amount they spent today and then you go look it up in the practice management system and they’ll miss it by 300% too high and too low. Excepting breeders, maybe excepting people that have a chronic condition with their pet are in there all the time, the fact is they’re, for the most part, not going to notice. I mean somebody used to say, “My fees need to go up 12%, should I do it all at once or should I do it 1% a month for the next year?” And the answer is, “Well, would you like to upset your staff once or would you like to upset your staff monthly for the next 12 months?” It’s like clients aren’t going to know but we are going to, and that hurdle you mentioned is a big one, it’s getting the staff comfortable.
I tend to be a fan of, and I’m reading more articles about in the veterinary press about open book management. Let’s share with people that it costs $6,000 a day to open the door here and this is why we need to be vigilant, for example, in charging for the things that we do. I mean I think that’s a big opportunity, Andy. I think before I got high and mighty with professional fees and making big increases, let’s double-check and make sure our controls are really good and we’re charging for the things that’s happening today in the exam room or in the hospital or in the lab. Because I think plugging those holes, I mean, has an immediate and extraordinary impact on the bottom line and that kind of thing mitigates the need for maybe as large or as frequent a fee increase.
Dr. Andy Roark:
Hey, guys, I just want to hop in really quick and give a quick plug. The Uncharted Veterinary Conference is coming in April. Guys, I founded the Uncharted Veterinary Conference in 2017. It is a one-of-a-kind conference. It is all about business. It is about internal communications, working effectively inside your practice. If you’re a leader, that means you can be a medical director, it means you can be an associate vet who really wants to work well with your technicians, it means you can be a head technician, a head CSR, you can be a practice owner, practice manager, multi-site manager, multi-site medical director. We work with a lot of those people. This is all about building systems, setting expectations to work effectively with your people. Guys, Uncharted is a pure mentorship conference. That means that we come together and there is a lot of discussion. We create a significant percentage of the schedule, the agenda at the event, which means we are going to talk about the things that you are interested in.
It is always, as I said, business communication focused but lots of freedom inside that to make sure that you get to talk about what you want to talk about. We really prioritize people being able to have one-on-one conversations to pick people’s brains, to get advice from people who have wrestled with the problems that they are currently wrestling with. We make all that stuff happen. If you want to come to a conference where you do not sit and get lectured at, but you work on your own practice, your own challenges, your own growth and development, that’s what Uncharted is. Take a chance, give us a look, come and check it out. It is in April. I’ll put a link in the show notes for registration. Ask anybody who’s been, it’s something special. All right, let’s get back into this episode.
I think one of the big things for me, coming up, practicing as a vet in a bunch of different practices, I do think that there’s always some question and I get it. So there’s always some question where you’re a technician and you know that the pet owners you’re working with are going to have a hard time financially with what you’re going on. Whether they told you that or whether you made that assumption, but you have that in your mind that that’s true. So the dog is shaking its head and you take the cotton tip applicator and you swab this dog’s ears and roll it on a slide and look at it under the microscope, stain it and look at it under the microscope and then you toss that thing away. And then I think a lot of people struggle with that being a $55 service or whatever you charge for it.
They go, “Well, there was no real cost to that, I just looked at it under the microscope.” You know what I mean? And so it’s hard I think for a lot of people to say, “No, I firmly believe that that was $55 and it needs to be $55,” when there’s very little hard cost associated with that except for the piece of glass that we put this on. And so it’s always been important to me to make the staff believe that the prices matter. Yes, it is $55 and it needs to be $55. And I don’t think you can do that without some level of transparency and without a reputation with your staff of being honest, you know what I mean? They’re smart.
If they believe that you’re an honest person and you can be transparent with them and say, “This is why these prices are what they are, and even if you don’t understand why this was is specifically what it is, I need you to believe that it’s set for a reason at this place,” I have found that if I worked in practices and people said, “Yes, I believe the prices are what they are for a reason,” that was a healthier practice of people charging the prices that had been set than places that I’ve worked where people were like, “You know what? These guys are always just raising the prices and see what they can get away with.” And the staff did not buy into that. And as a result, you saw all kinds of little, “We only charge for one ear,” sort of stuff that you go, “I don’t think that’s what was intended,” but it happens all the time. But that transparency and people believing in the prices, I think that that’s really important.
Fritz Wood:
Well, I couldn’t agree more. And whether that’s through open book management, whether that’s through confidence they gain maybe by looking at some industry resources… I’d put a pitch out for the American Animal Hospital Association’s veterinary fee reference. I just think that’s an invaluable resource for every clinic, comes out every two years and by far the biggest database, thousands of clinics that are certainly AHA and non-AHA clinics and it’s broken down by numbers of doctors, it’s broken down by the region of the country. It’s broken down by urban, suburban, rural, and there’s thousands of fees in there. So it’s just a reference point. I think any comparisons that you could get from similar clinics. I don’t think the clinic down the street if it’s not similar should really matter to you. But if you have a high-end, high tech, well-skilled, four doctor clinic, then you ought to be comparing yourself to a suburban location.
You got to be comparing yourself to other clinics that look like you. And I am absolutely not making an endorsement and I don’t know enough about it and haven’t talked to enough people that have used it, but there is a program called Profit Solver that basically is a mechanical process of inputting the costs of everything, labor, overhead, property, and loading everything up, and who’s doing these things, and how long is it taking. And so it’s a very objective and it’s a technical thing, but it’s a way to make all your fees defensible.
Dr. Andy Roark:
I’ve always liked that program and I don’t have any stake in this, I don’t work with those guys. I don’t have any connection to them at all. But I’ve always liked that program. And basically the idea I think that I like about it is it’s basically a big powerful spreadsheet and you put your expenses in and you set your prices and it says to, “You can’t keep the lights on if you price this.” And then if you want to reduce the cost of that ear cytology, if you say, “$55 is too much, I’m going to take it down to $42,” it will say, “Great. What are you going to raise to make up for the amount of money that you just reduced?” And I just like that. I just think a lot of people feel like they’re floating in space and just making up numbers.
And whenever I found myself in my career setting prices and just making up numbers, I never feel good about it. I always have this insecurity that I’m way undercharging what I’m going to end up needing for my business to work or I’m way overcharging and someone’s going to say, “How dare you charge this when other people charge half this and do just as good of work?” Well, I don’t want that. I’m not trying to do that. And so to me, I really like the idea of something that gives you a place to put your foot. And so I’ll put a link to the AHA vet fee reference. I love that as a resource of look, just at least get some numbers you’re going to put your foot on.
Let’s go ahead and play a game real quick here, where if I came to you and I said, “Fritz, I’ve got my practice and,” let’s just say it’s a six doctor practice and, “I want to give cost of living increases to match inflationary pressures and I need to get my staff up and I’m feeling pressure to raise my salaries to retain my staff,” which is something I hear a lot about. “I am looking at this, I’m thinking I need to raise my fees,” what advice would you give me before I did that? So you’d mentioned some alternatives, what would you walk me through before you said, “Yeah, let’s look at those fees?”
Fritz Wood:
The very first thing, Andy, would be let’s talk carefully about this fee increase or, I’m sorry, about this payroll increase.
Dr. Andy Roark:
Okay.
Fritz Wood:
And I think we need to define whether that’s built into all future payroll or if that’s a discretionary more like bonus type payout. In other words, back to the technician making $50,000 and we had a 5% increase, one option is to write him a check for $2,500. One is to doll it out quarterly, one is to do it at the end of the year. So got different strategies there. If people know that’s the plan and even though the dollar amount is the same as far as the employee’s concerned, it does give the business owner a little more flexibility in the sense that it’s not permanently built into the cost and you just have to think longer term.
I always like to use the example, I started work at Arthur Anderson in 1986 and had a secretary and she had begun working there about five years before I had been born. Had there been years like there are now of 7% or 8% and there were, even higher in the late seventies, real high inflation, you’d have the secretary making five, $600,000 a year. And that’s not palatable for that particular position. So you don’t want to permanently graduate out of… And one of the things I’d like to know is where are we now? In other words, I’d like to see what’s your total labor as a percentage as your expense? And there are some other things I would tell you that would be beyond the scope of our conversation here, but let’s look at our staff effectiveness. In other words, let’s look at things like number of revenue dollars per labor hour, number of transactions per total labor hour that give us a measure of how efficient are we already compared to the averages or the medians and things like that.
So we got to decide is this sort of paid out as a bonus or is it part of the permanent increase in the hourly wage or salary on the one hand. And then I think when we start thinking about fees, I mean I agree that… One of the things I think we got to point out, Andy, is what we never want to do in my mind is keep a potential client from coming in the first time. We don’t want to build up a wall to opening up that door to the lifetime value of a pet. And then even more broadly, which in my calculations I just took the AHA fee reference and the protocol I used was like the AHA Partners for Healthy Pets. And if you price that protocol out using fees that people are now charging, the lifetime value of a dog, probably $25,000.
So guess what? Pets live in multi-pet households. So let’s start talking about the lifetime value of that household. Or somebody like me, I don’t have multi pets, but I’ll probably have six in my life. So suddenly you’re talking about tens and tens and tens of thousands of dollars, which is another reason why you want to be fair on your pharmacy prices. It’d be silly to lose the lifetime value of a client because you were $5 too high on flea control. That’s bad math, right?
Dr. Andy Roark:
Yeah.
Fritz Wood:
So I think we have to distinguish between the sort of shopped and exposed fees. And look, the first thing I would tell you, I should’ve started this whole podcast by saying this subject is a lot more art than science. And that’s why things like that Profit Solver tool intuitively appeal to people like you who are a scientist or me who’s an accountant, because it’s bringing some objectivity to something that is really very… I’ll give you another one. I mean inherently people believe things that are more expensive are more valuable and worth more. So that’s one reason you may want to be the most expensive clinic in town.
One of the odd things about professional fees is we all tend to think, “Well, it’s that low clinic in town that’s holding us all back,” and that’s completely false. It’s the highest clinic in your town, it’s their reluctance to go higher. And that’s why in certain communities, you have these, what I’d call pockets of affluence or pockets of poverty. And it all has to do with the highest clinic in that area and their reluctance or their eagerness to continuously move higher because the fact of the matter is veterinary care is never going to grow less expensive. It will always grow more expensive, unfortunately, at least with the model we’re using today.
Dr. Andy Roark:
Yeah. I was having a conversation with a bunch of practice owners and they were sort of talking about corporations buying into vet practices and stuff like that, and there were mixed emotions obviously about corporate practices, especially among independent business owners. Maybe not all that mixed, maybe just generally kind of negative. And it was funny, but sort of my comment to them, we were talking about the impacts that corporates have actually had in vet medicine and I was like, “By coming in and raising fees over the past decades, they have dragged a lot of practices kicking and screaming into financial solvency.” As they have come in and been more aggressive and said, “These numbers don’t work, we’re going to raise these fees,” that makes a lot of other people feel at least okay about saying, “Well, we have been scraping by and maybe we could charge a little bit more.”
And I go, “There’s been a lot of good from corporate medicine coming in and just looking at things from an unemotional eye and raising prices.” And I think those of us in the trenches, we want to find the balance between keeping things affordable, but also paying ourselves and our staff. So it was just an interesting conversation of, “Let’s not pretend that corporations have not been good for medicine in a lot of ways.” But as you say it’s not the poorest practice in town that’s holding everyone back, it’s the richest, and I go, “That really makes sense.” I really like the way you laid that out. I’d not considered that.
Fritz Wood:
Well, there’s always a price leader in any community. And as you point out very often, that’s going to be a corporate practice today. They’re not known for low cost. I guess there’s one. THRIVE Affordable has the $15 a month plan, but for the most part, they’ve taken the strategy of high-end leader. Even Banfield, I mean, you look at their wellness plans or you can go to Walmart and look in the clinics where they have the vet clinics. I can give you some links to the two companies that are operating there and all their fees are on their website and everything. I mean it’s Walmart pricing, but at the same time, I wouldn’t say it’s cheap. I’d hate to think somebody would look at those fees and cause them to increase their own, but you might.
Dr. Andy Roark:
Yeah. Yeah. I’m sorry.
Fritz Wood:
I just was wanting to circle back. One thing I don’t think I answered very well, if the pharmacy were lost, let’s just say tomorrow we wake up and there is no pharmacy and veterinary medicine, then the implication of that is that everything else that you do becomes a lot more expensive necessarily, right? Because you’re right, the product business has basically subsidized the medicine part of the business. And so if the product business goes away in its entirety, then the services necessarily become more expensive. So I would try to push that day as far down the road as I could. I would fight until I’m dead and it’s getting more difficult. But I think if you choose to be price competitive, there’s still huge opportunity in the pharmacy.
Dr. Andy Roark:
Yeah. Oh I know. I completely agree with that too. I really like your position earlier. I have to sit and process it. If you said to me, and it sounded like you said this earlier, “The media coverage of the pharmacy disappearing is definitely much more real than the actual loss of the pharmacy,” I go, “That kind of tracks honestly.” I have not seen a reduction in the pharmacy that I send out the door, even though it’s been at least 10 years of people telling me that that was coming. And you can look at the world and see how you squint and sort of see it. But I think your point is really valid. That day has not really come in practice that I’ve seen. The last question I want to ask, and I want to get you to squint into your crystal ball a little bit. And we talked about corporates in practice and then I’m looking and seeing a lot of virtual visits and things like that.
I got an email from a big pet retailer that has free vet consults by text and by video when you sign up for their auto-ship. And I don’t think it’s free, you can use this all the time. I think it’s maybe you get one free trial, something like that. But basically it was fairly $15 for a text consult or 20 bucks for a virtual consult and then it was free with auto-ship for X amount of time or things like that. Well, I see a lot of value in that to pet owners. I can see pet owners getting on board with it. When you look and see things like that, do you think that that will bring about a radical way in how we price our services or charge for our time? Or do you think that’s just going to get rolled in to our current model and things will sort of go on in roughly the same sort of in a price breakdown, price priority that they have in the past?
Fritz Wood:
I would say my crystal ball is cloudy probably, Andy, not that they’ve been great at predicting the future, but I think what you’re talking about represents a threat in my mind. I’m mildly concerned. On the one hand, we’ve got labor issues and part of that is you can’t make a veterinarian overnight and yada, yada. And people are retiring faster than they’re coming in and the growth in the industry. And so on the one hand, to me, it’s kind of like there’s this faction pushing towards a looser veterinary client-patient relationship definition. Look, back up a step. I mean, industry, multi-billion dollar companies have always considered the veterinary channel to be a stranglehold on distribution. I mean, veterinarians aren’t notoriously outstanding retailers or merchandisers. For example, they’re not open on Sunday very often, which tends to be the busy shopping day. They’re less likely to do home delivery and these different things that consumers want, online ordering.
And if you’re a manufacturer or distributor, what you’re interested in is getting that product in the consumer’s hand. The consumer in this case is the pet owner. So if you look at press releases from the major companies, and they’re publicly traded for the most parts, they have to be honest and they have to tell you what their plans are, I mean, you see continuously this what I’d call direct-to-consumer. And the way I would define direct-to-consumer is around the veterinarian. So if you’re a major internet retailer, of course you would’ve doctors on staff. I’m surprised they would charge anything for a consult. I thought it was free if you signed up for the auto-ship. Now, I’m not suggesting that that consult is going to take a lot of veterinary services necessarily away from the independent practitioner, but I think it’s highly likely they’re going to take all the pharmacy.
Because if that virtual doctor who’s never seen the pet, doesn’t know the client or anything else, is able to establish that relationship then they can dispense. So suddenly you’ve opened the floodgates. By those companies having their sort of in-house doctors, you open the floodgates. I mean, let’s face it, you see the same thing with men’s health, right? I mean, you see these commercials. I guess you’re able to establish some sort of client-patient relationship virtually and they dispense some or prescribe some sort of products. So it’s the same idea. It’s just circumventing the vet. And I think the forces that are for that are greater than the forces that are against that right now. So when I say that, I mean manufacturers are for… Come on, what do you want if you’re a consumer? You want home delivery, you want auto-ship, you want the free consult. You may never use it, but you want it. You want a competitive or low price, you want all those things that you’re getting, right?
And to a large extent, a veterinary clinic is a single purpose errand for people. I mean, they’re going there to pick up one thing. And so it’s inefficient. Those are the kind of things. I mean, of all things people buy on the internet, pet food is like number three or four because it’s bulky and because people never want to worry about running out. I mean, they just have it auto-shipped. So that bothers me. Again, I think the death of the pharmacy’s premature here, but at the same time, the future looks more grim and difficult than the past. I already think, like I said, we have an affordability problem in veterinary medicine, but if we lose the pharmacy, then it gets really ugly. And then I think you’re going to see a real push for things like the practice acts changing, let’s say technician clinics where they’re dispensing vaccinations and doing wellness visits and yeah, sure, dispensing flea control and heartworm preventative may be, and certainly catching a blood sample for a diagnostic test. Go look at the Walmart offerings, it’s pretty robust.
I mean, when they take that sample for the heartworm test and the vector-borne disease test, I mean, they’re trying to sell CBC also, just an extra 50 or 60 bucks, something like that. So I mean, that’s the low-hanging fruit. I mean, those are things that, as we’ve discussed, have historically subsidized the expensive medicine that we haven’t charged enough for. At the end of the day, consumers love their pets and tend to love their veterinarians so nothing’s going to change quick.
Dr. Andy Roark:
Yeah, I get that mean. It’s definitely interesting to look down the road. That’s kind of what I was playing with. Fritz, overall, what are your final thoughts, words of encouragement, anything like that that you would put forward to vets that are looking at their prices?
Fritz Wood:
Well, I would say veterinary fee increases are inevitable unfortunately. None of us like it, but it’s a fact of life. I find that veterinarians, they drag their feet, but once they get around to changing their fees, I’ve never had someone regret it. One of the great things about fee increases is they’re absolutely revocable. So look at it as a no sweat decision. You can change your mind. I’ve never seen anybody do that but you can always change your mind. You can go back to the way you used to do it. So it’s safe. There’s a gap there. Anything you can make it more defensible through some of the tool tools we talked about today, so it’s well received by the staff is very important.
And look for these other opportunities. Make sure you’re charging for everything that’s happening. I mean, make sure that we’re trying to get that pet in there for one extra visit. Those kind of things necessitate a much less or much less frequent fee increase. So let’s make sure we’re doing the blocking and tackling too because there is a ceiling, and I think we’re hitting it now in terms of affordability and I think we’re getting close too. So I appreciate the opportunity to participate today, Andy. Thank you.
Dr. Andy Roark:
Well, yeah, thanks for being here. Where can people find you online? Where can they learn more, Fritz?
Fritz Wood:
Just fritzwood.com or just Google Fritz Wood and you’ll find telephone number and email address and website and all those kind of things. Also LinkedIn and Facebook. But the best would be email.
Dr. Andy Roark:
All right, perfect. Well, I’ll go ahead and put links in the show notes. Thanks so much for being here. Guys, thanks for tuning in. I hope you got something out of today.
And that is our episode. Guys, that’s what I got for you. I hope you enjoyed it, hope you liked, I hope you got something out of it, hope it made you think heavy stuff, interesting stuff. Man, I hear what Fritz was saying. I definitely see where advances in technology will radically change vet medicine. I am optimistic that the future is bright for veterinarians and for veterinary staff. I think it’s going to be different. I do. I think that our model is going to change. My crystal ball has been wrong many times before. I think this is really fascinating to think about and keep our eyes on just so that we can adapt as the world changes around us, because it is going to change around us. But I love this profession, I don’t want to do anything else. I’m super positive about where this all goes. Anyway, guys, take care of yourself. Be well. I’ll talk to you later.
