It Might Be Time To Adjust Clinic Fees

With decrease in fees, clinics must be inclined to adjust their own fees.

Top customer service can make clients feel higher fees are worth it.

Veterinarians often wonder how to adjust their fees to compensate for losses attributed to clients’ postponing pets’ annual exams and vaccine updates.

Many advisers recommend re-evaluating fees annually and adjusting rates accordingly, but advise against  decreasing fees across the board. Packaging services and remaining competitive on shopped-for products and services, such as spays and neuters, veterinarians can help meet their bottom lines, say certified public accountants. The consultants add that maintaining customer service is priority.

“We monitored a client’s practice for four months after she decreased her fees on flea and tick products and she didn’t sell more,” says Michael Porrello, a CPA at Lacher McDonald & Co. CPAs in Seminole, Fla.

“This is a common outcome when fees are reduced. The clients who would have come to the practice even without the fee reduction are just getting a better deal, while the veterinarian loses revenue. Granted, the fee reduction in this case wasn’t heavily marketed, but marketing is often an area in which practices could use an improvement.”

Possible to Lose Money

Experts say the economy is just the current reason being blamed for revenue loss, but they note that money can be lost in all economic climates.

“Bits of revenue are detoured from primary care practitioners by kennels, specialists, vaccine and spay/neuter clinics, 1-800 pharmacies and the Internet,” says Tom McFerson, CPA, ABV, at Gatto McFerson CPAs LLP., in Santa Monica, Calif.

“While fee setting is unique to each practice, it always has to reflect local demographics and competition. It’s impossible to make all clients happy all of the time, so veterinarians need to decide what type of practice they want and shoot to make clients happy through medicine practiced, fees and customer service.”

While setting fees too low may mean attracting the wrong clientele, fees set too high will also have a backlash.

“You cannot offer Ritz Carlton service at Motel 6 prices, and you cannot offer Motel 6 service at Ritz prices,” says Gary Glassman, CPA, of Burzenski & Co., P.C., in East Haven, Conn. “Your fees need to reflect the level of service you provide. Clients are very perceptive at what they get and what they pay. Clients who pay a lot will expect to get a lot.”

Address All Fees at Once

Veterinarians are encouraged by CPAs to raise fees to appropriate levels if they haven’t done so recently and increase them at a percentage they’re comfortable with, across the board, all at once.

“Veterinarians should address all fees at the same time,” Glassman says.

“Fees provide a practice with the ability for the owner to earn a profit, which is expected and represented as a return on the investment for ownership of the practice. This should be 13 percent to 16 percent of gross revenues. If practices cannot earn a profit beyond a fair return for a veterinary salary and a fair rent for the use of their building, it has no value.”

CPAs contacted by Veterinary Practice News say veterinarians typically do not consult with a CPA prior to setting fees. Glassman says many set prices based on what their colleagues charge without regard to their own actual costs.

“There are certain fees that are considered shopped and exposed and are commodity based, meaning clients perceive little value in them so they are extremely price sensitive,” Glassman says. “Practice owners should be sensitive about these fees and price them based upon the marketplace. This means they need to know what the going market rate is for these services and then price accordingly.

“Other fees are typically set by asking colleagues what they charge, or it may be that someone established a price many years ago and that still is the basis for how the fee is determined now.”

Experts recommend making a list of local competitors and having an employee ask what their rates are for “shopped services,” such as spays and neuters and declaws.

Tools

The American Animal Hospital Association (AAHA) fee reference guide is published every two years. The latest version, the sixth edition, was published in 2009 and reflects fees through 2008. The cost for AAHA members is $132.95 and for non-members it is $159.95. The guide offers statistics on more than 450 services, 670 tables, markup calculations and actual cases in which veterinarians implemented fee changes.

“Fees should be developed based upon the actual cost structure of the hospital with a profit margin of 20 percent to 30 percent,” Glassman says.

“Every hospital has a different cost structure and the fee schedule should match that. A hospital needs to develop a cost per minute for overhead, doctor and technician time associated with a procedure, add the cost of supplies and the use of equipment plus a profit margin to determine a fee.

“Once a fee is developed, it can be adjusted to meet market conditions if it is determined that fee is a shopped and exposed fee,” Glassman says. “My firm has developed a computer model to assist clients with determining their fees based upon their actual costs. We run their costs through our model and assist them with developing the fee. Others have also developed fee development programs that are cost-approach based, such as Fair Fees and Profit Solver.”

Since technicians and receptionists discuss fees more frequently with clients, veterinarians need to include them when discussing fee changes. If staff doesn’t understand or agree with the changes, they won’t be able to answer client questions or adequately represent the practice.

All Aboard?

“Provide staff and associates with information on costs,” Glassman advises. “Just as with veterinary clients, they will not accept your recommendations without being educated. Open-book management allows owners to share certain financial information so that if they understand what something costs, they can then relate to what must be charged so the hospital bills and their salaries can be paid.

“Many doctors are not open about this communication and that lends itself to the issue of getting non-compliance with the fee schedule. If you never share the playbook, how is your staff supposed to know how to play the game?”

Ultimately, the decision on fee rates is that of the practice owner, says Karen Felsted, DVM, CPA, CVPM, MS, the CEO of the National Commission on Veterinary Economic Issues.

“Hopefully you’ve hired like-minded people and it won’t be a struggle to get staff to agree with your fee changes,” Dr. Felsted says. “Prices are a strategic thing and can’t just be set and forgotten about. They’ll constantly vary. It doesn’t get a lot of attention and none of us [veterinarians] are experts on the general approach on raising fees. Should it be a 3, 5 or 8 percent increase? Connected to fees is the practices’ client communication. Every practice should have its own website and identify trusted links such as AAHA and the American Veterinary Medical Association.”

Track Client Comments

Felsted notes that many clients don’t understand veterinary care, so there has to be an educational component by the practice to make sure the client understands why the veterinarians’ recommendations are important.

“A common client concern is that they didn’t get enough from the visit,” Felsted says. “If clients don’t see the value in bringing their pets to the vet, they’re not going to come unless it’s an emergency.

“Clients also know when costs increase. They make comments like, ‘I could get the same thing done two years ago for just $60, and now I can’t get out of the office for less than $150.’ Staff needs to be able to convey to clients that they’ve gotten more for that fee. This might seem obvious, but it doesn’t matter if they perceive it otherwise.”

Good customer service in all areas of the practice is necessary to increase client compliance and foster client loyalty. Even if the bill tallies to more than planned, they won’t look for a new practice if they are happy.

“In general, clients are less likely to complain about the fees if they are completely satisfied with the practice’s service,” Felsted says. “There will be cases where clients simply don’t have the money for the recommended service, but if they planned on spending $2,000 and it cost $2,400, they may be OK.”

Listening to clients’ opinions about fees is important, but consider all comments with a grain of salt.

“Veterinarians should listen to client comments, but no one complains about fees that are too low,” Glassman says.

“Fee comments are typically based on a client’s individual perception of the cost to them, which is based upon their own knowledge and experience. So comments tend to be personal and as with staff, sometimes you have to educate a client on the cost of a service or product to get them to buy into what the price is.

“Some suggest that if no one complains about your fees, you’re not charging enough. The best thing you can do is not overreact to comments,” Glassman says. “Understand them, know who made them and then make an educated decision, taking into consideration your own knowledge of what a service or product costs.”

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