We are dusting off our most listened episode of 2023 in which 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.
You can also listen to this episode on Apple Podcasts, Google Podcasts, Amazon Music, Soundcloud, YouTube or wherever you get your podcasts!
LINKS
Fritz Wood Website: https://www.fritzwood.com/
Uncharted Veterinary Conference: https://unchartedvet.com/uvc-april-2024/
Uncharted Veterinary Community: https://unchartedvet.com/uvc-membership/
Leadership Essentials Certificate: https://unchartedvet.com/certificates/
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
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
Dr. Andy Roark:
Welcome everybody to the Cone of Shame Veterinary Podcast. I am your host, Dr. Andy Roark. Guys, I got a Hall of Fame episode for you today. That’s right. That means one of the most popular episodes that we’ve ever had. This is originally episode 1 77. It makes me so happy that this turned out to be one of the most popular episodes of the last year because it’s my friend Fritz Wood. Fritz. He is an industry expert, insider observer, advisor. He does a ton of financial planning with veterinarians. He is just a generally very knowledgeable guy and I love talking to him and I think that that’s reflected in the popularity of this episode. We talk about the art of pricing veterinary medicine. We talk about how we set prices, how much elasticity there are on those prices, how pet owners feel about pricing generally, what are we doing here and how do we get this right?
And that is a question that I hear again and again. I think a lot of us medicine wonder, are we charging what we should be charging? And it’s always that balance of trying to keep care accessible and affordable and also to charge what we need so we can run healthy practices and pay our staff decent salaries. And there’s always tension. I think Fritz is such a great thinker. I love the fact that he got into this episode with me and just sort of talked everything through. And so anyway, without further ado, let’s get into this Hall of Fame episode.
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. I appreciate the opportunity. Oh man, opportunity. For those who don’t know, you have been a CPA certified financial planner. You are an industry advisor, an 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 not getting 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 looked through and check out your column when it comes in. And there was something that 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 that 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
Fritz Wood:
With? 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 I’m a little value. And I think this is 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 look 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. I used to talk about it all the time. And 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 sort anecdotal observation is that subsequent to that, so in the 22 years since then, or 24 years since then, veterinary fees have driven 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 clearly 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 were sort of a pendulum swung rapidly and perhaps too far and too fast the other direction.
And I agree with you completely. I do believe, 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 is 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, 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, right? 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 we’ve got, that’s a highway, 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 it’s 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 divide 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 kind of where we are, where we’ve 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 car, groceries, food at the grocery store and household income is 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 from June, 2020.
That was kind of the NIR 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 that’s about the same time 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. And we can 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 change 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 that 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 you can draw that decline. I mean, in other words, fees have increased continuously, right? This isn’t just a matter that happened in the last six quarters. They’ve increased continuously. I think it was the inflation that kicked off. I mean, and part of it is the first year of that we were comparing against, so of the six quarters where things have declined, four of those or 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, three or 4%. So here’s kind of the way I think we’re off. Transactions are down this year, three 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 this purpose of this conversation that we’re only talking about professional fees. I mean, 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 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. I mean, 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 sort of 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’d really wrestle with this a little bit is there’s been a perception of mine that more and more pharmacy business 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? Meaning 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 I’m saying as first of all, Valerie, 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 as 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 they guilty of what pet meds accused them for so long.
It’s fleecing 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. And 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. 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. I mean 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 that, so if we say, okay, we’ve got this huge expense that it’s critical to your success, if these people abandon you, you’ve 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, I’d at least increase with the level of inflation. So look, I’ll also tell you, obviously there are veterinarians that I’ve seen in 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 sort of 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.
I mean, that’s all the data in the world show clients come back more often, they spend more, their pets are getting older if 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. Here’s what I’m hearing you say, and lemme 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 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. Are you also saying, it sounds like you’re also saying that while my tech expects a 5% raise to keep up in 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:
I think you’re not exactly the first part, exactly the second part, I think whenever any of us leave a place of business, including pet owners leaving the veterinary clinic, I think you got three things that if I asked you a question, you’d be able to answer ’em 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. 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, okay?
Right. What people know. How about that? You remember, you might’ve only 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 because not because it’s a huge expense, but you buy it all the time, right? Like a loaf of bread or gallon of the 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. So the fact is, and we did some just fun exit 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.
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. The fact of the matter is accepting breeders, maybe accepting people that have a chronic condition with their pet that are in there all the time. The fact is, but what people do know, so they’re not going to, 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 going to, and that hurdle you mentioned is a big one of getting the staff comfortable. I mean, I tend to be a fan of, and I’m reading more articles 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, I mean, I’d want to make, 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, it’s going to cut in here real fast because if you’re listening to this episode around the time it comes out, it’s the end of the year. It’s the end of 2023, and for many of you, that means your CE budget is about to run out. And if you have a use it or lose it budget, this is it. I got something for you. look@drindywork.com. Take a look at my team training courses on exam room communication and working with angry clients. Those are two on-demand courses. You can have ’em right away. They both got Ray CE wrapped up and approved. They are great for taking ’em individually or also doing ’em with your team and then having discussions in your practice. They’re made for that. So anyway, great on demand right now, CE is that. Also take a look at the uncharted April conference, the granddaddy of all April Uncharted conference is coming up.
Registration is open. You could grab your spot right now for that or think about being an uncharted member. Uncharted veterinary community is something we started in 2017. It is all about people who love leadership, managing others, and communication. So we work on that stuff all the time. As a member, you get access to our community, which is super freaking fantastic. You get discounts on things like our conferences, like our virtual summits, things like that. You get our leadership essential certificate, which is eight hours, and our first and only certification, it’s included with our membership. So you can have it for free, it’s a $500 value, but feel free to grab that. If you’re like, you know what, I don’t want to be a member, just want that certificate. You can head over to VetFolio and grab the uncharted leadership essential certificate there and have it right now.
So anyway, guys, end of the year budget, CE budget, use it or lose it. You want to make sure that you’re using the resources that you have to get the knowledge that you want. And so anyway, I’ll put links to all that stuff in the show notes. I hope you’ll check it out. If it makes sense, grab it for you. I’m really proud of my team and the stuff that we put out that lets people learn on their own. And so anyway, I’m going to stop talking about this. Check it out, links in the show notes. Guys, let’s get back into this episode. I think one of the big things for me coming up practicing as ave in a bunch of different practices, I do question and I get it. So there’s always some question where you’re a technician and 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’s 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, right? 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, that yes, it’s 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 for your staff. But 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 is specifically what it’s, 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. Then 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 a 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 I think. 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 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 for doctor clinic, then you ought to be comparing yourself in a suburban location.
You ought to be comparing yourself to other clinics that look like you. And I’m, 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 so you get a real, 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 sort of 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 that I like about it is you put your expenses into this program. 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, your cytology, if you say $55 is too much, it needs, I’m going to take it down to 42. It’ll 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 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, that fee reference. I love that as a resource of look, just at least get some numbers you’ve got 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’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 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. 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 do it out quarterly or one is to do it at the end of the year. I mean, so you’ve got different strategies there. If people know that’s the plan, there’s some, and even though it’s a total, the dollar amount’s 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. 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. And so think of some of the, had there been years, 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 mean, 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 is your expense? And there are some other things I would tell you that’d 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.
But 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 client, 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, I mean the lifetime value of a dog, probably $25,000. So guess what? Pets live in multi pett households. So let’s start talking about the lifetime value of that household. Or somebody like me, I don’t have multi petts, 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 are $5 too high on flea control. That’s bad math.
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 have 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 scientist or me who’s an accountant. It’s bringing some objectivity to something that is really very, I’ll give you another one. I mean, there’s inherently people believe things that are more expensive or more valuable and worth more. So that’s one reason you may want to be the most expensive clinic in town. And 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. The fact of the matter is veterinary care is never going to grow less expensive, and 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 sort of generally kind of negative. And it was funny, but my comment to them, we were talking about the impacts that corporates have actually had in vet medicine, and I was like, they have, 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 kind of scraping by and maybe we could charge a little bit more.
And I go, there’s been a lot of good from corporate medicine in coming in and just looking at things with 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. And 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 this about it’s not the poorest practice in town that’s holding everyone back. It’s the richest. And I go, oh, that really makes sense. I really like the way you laid that out. I’ve 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 that thrive, affordable has the $15 a month plan, but for the most part, they’ve taken the strategy of high-end leader. I mean, even Banfield. I mean, you look at their wellness plans or you can go to Walmart, 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. And I mean, it’s Walmart pricing, but at the same time, I wouldn’t say it’s cheap. I mean, 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.
Fritz Wood:
I’m sorry. I just was wanting to circle back. One thing I don’t think I answered very well on. If the pharmacy were lost, let’s just say tomorrow we wake up and there is no pharmacy in veterinary medicine, then the implication of that is that everything else that you do becomes a lot more expensive necessarily, 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 service is 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, but 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 no, I completely agree with that too. I really liked 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, we still, 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 see it, but I think your point is really valid of that day has not really come in practice that I’ve seen. Last question I want to ask and 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 a lot of virtual visits and things like that.
I got an email from a big pet, a retailer that has free vet consults by text and by video when you sign up for their autoship, and I don’t think it’s free, you can use this all the time. I think it’s maybe one 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 autoship for X amount of time or things like that. 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 go on and roughly the same sort price breakdown price priority that they have in the past?
Fritz Wood:
I would say my crystal ball is cloudy, probably Andy, I’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 and they’re coming in the growth in the industry. And so on the one hand we’ve got, to me, it’s kind of like there’s this faction pushing towards a looser veterinary client patient relationship definition. I mean, 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, a 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 part, so they have to be honest and they have to sort of 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 autoship. 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.
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 of, I guess you’re able to establish some sort of client patient relationship virtually and they dispense 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 consumers. Come on, what do you want? If you’re a consumer, you want home delivery, you want autoship, 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. So it’s inefficient. Those are the kinds of things. I mean, pet suit of all things people buy on the internet, pet foods like number three or four. I mean, because it’s bulky and because people never want to worry about running out. I mean, they just have it autoship. So that bothers me that, 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. And that causes me to, 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 fleet control and heartworm preventive maybe, and certainly catching a blood sample for a diagnostic test, which is, 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 a CBC also, right? Just an extra 50 or 60 bucks, something like that. So I mean, that’s the low hanging fruit, right? I mean, those are things that, as we’ve discussed, have historically subsidized the expensive medicine that we haven’t charged enough for. So yeah, I think the future, I mean, 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. I mean, it’s definitely interesting to look down the road. That’s kind of what I was playing with Fritz overall, what your final 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 it’s 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 nat there. Anything you can make it more defensible through some of the 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 kinds of things necessitate a much lesser, a 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 to. 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 fritz wood.com or just Google Fritz Wood, and you’ll find a telephone number and email address and website and all those kinds of things. Also LinkedIn and Facebook, but the best of email.
Dr. Andy Roark:
Alright, 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’s it, guys. That’s what I got for you. I hope you enjoyed it. I hope you got something out of it. I hope you’re like, man, I see why that was a Hall of Fame episode. That was really darn good. If you’re sitting there thinking, man, that was really darn good. Do me a favor. It’s a nice end of the year. It’s like got a belated holiday present to Andy. And that would be an honest review wherever you get your podcast, it’s how people find the show. It means the world to me. So if you got a second and you just want to do something nice to wrap up the year with or start off the new year with, that’s a nice thing that you could do for me. I would be eternally grateful. Anyway, take care of yourselves, everybody. Get ready for a great 2024. I’ll talk to you later.
