In veterinary medicine the math should be simple: If your inventory costs, overhead expenses, and payroll demands are climbing due to inflation, gas prices, and an über-competitive staffing environment, it goes without saying your prices will have to climb if you don’t want to see your profitability suffer. After all, in business, income minus expenses should be a positive number if you intend to stay afloat.
After speaking with a number of my colleagues whose veterinary practice management duties give them insider knowledge, I have learned profitability has become increasingly problematic over recent months. It’s happened quickly, taking many of us by surprise after we had collectively breathed a sigh of relief with the relaxing of pandemic precautions.
Out of the frying pan…
Global forces seem to be the most immediately pressing. These include continued supply chain issues, heightened geopolitical instability, gas price hikes, unexpected rates of inflation, and interest rate hikes. They have all unbalanced and unnerved us—more so given they have arrived just in time for our industry’s least profitable months of the year.
The psychological impact is not to be dismissed. We feel it acutely, so much so that levelheaded decision-making has become both more urgent and intensely fraught.
As much as macro-economic factors continue to weigh, industry-specific issues persist in their relentless turning of the screws. Here is a smattering of the evolving crises we currently face:
1) Ballooning payroll expenses
Human resource management continues to exert its disproportionate impact on day-to-day practice management. Staff shortages have led to a competitive hiring environment and higher payroll expenses overall.
2) Heightened demand for raises
Meanwhile, squeezed hard by rising prices, our team members are clamoring for raises. And it’s hard to say “no” when there is always a practice willing to pay them a better hourly rate.
(Strapped staff are often unwilling to consider benefits when making decisions. After all, health insurance won’t fill their gas tanks or pay for daycare.)
3) Morale matters
Not surprisingly, stressed-out teams are the norm. I’ve yet to hear about a team experiencing a current lull in its drama or collective stress level. When staffing levels are too low and money is tight, morale is bound to tank.
4) Higher inventory costs
That was our drug bill for February? OMG! Never mind it’s the shortest month of the year. Our inventory costs zoomed up during the first months of the year, what with higher pricing in just about every category. Steps we had already taken at the end of 2021 to mitigate these expected higher expenses availed us very little. It was quite a blow to our bottom line.
5) Spiraling decline of the in-house pharmacy
To make matters worse, the past year has seen an increased erosion of in-house drug sales. Clients have clearly become even more comfortable purchasing both drugs and products online.
It’s been gradual, but these defections are definitely hurting us more than we would like to admit. Getting creative with our in-house pharmacy sales (and our sales pitches) has helped, but not nearly enough to make up the difference.
6) Cash is king
Once profitability has taken enough of a hit, borrowing is inevitable. However, the recently increased cost on the debt makes the cycle that much harder to maintain. Eventually, diminishing cash reserves will take a toll. They will lead to reduced inventory on hand, moratoriums on hiring, and a veterinary practice death spiral leading to …
7) Customer service casualties
When you can’t keep drugs and supplies on hand, and you don’t have enough staff to maintain smooth operations, customer service will inevitably suffer. What’s worse is you’ll often see patient care take a hit even before your clients feel the pain of your inability to offer them the level of service you were once capable of.
It’s not rocket science. The key is to stop the bleeding and get the fluids running. In other words, stop extraneous expenses and raise your prices right now … before you get into even more trouble. There’s no other way around it. Here are some ideas:
1) Trim the fat off your payroll
Hate to say it, but now is the time to make hard decisions about those who have taken up residence on your payroll and contribute disproportionately little to your practice (or just make morale worse). It may just mean cutting down on their hours, but you know who they are. We all have them.
2) Look for new suppliers in overlooked places
If your suppliers are raising prices on certain categories of items, try to find alternatives for these categories elsewhere. In fact, I’ve taken to buying some items on Amazon and Chewy. Yes, really. It makes inventory management trickier, but I’ve saved hundreds of dollars a week buying certain items this way.
3) Raise prices on the most easily defended items
Start by identifying those items that rely most on transportation and energy consumption. Biomedical waste, for example. Given the higher cost of these services, raising prices here is defensible, and these hikes are more easily explained by citing energy costs.
4) Raise prices a small amount on almost every invoice
Finding that one ubiquitous spot where you can raise your fees by just a small amount is crucial. It will be different for every practice, but even just a few dollars can make all the difference.
5) Offer more in-house services
It may seem like the wrong time to invest in new equipment or know-how, but you’d be wrong to think so. It’s always a good time to consider offering more services. Some of these are no-brainers. For example, the list of highly doable, inexpensive lab services you’re probably not offering as routinely as you should is lengthy.
Consider all the derm cytology you’re leaving on the table. What about all the urinalyses you should have done and didn’t? Why not bring some microbiology back in-house? Are you performing enough fungal cultures? (Probably not.) The CE on cytology, for example, is ubiquitous. So get moving.
6) Offer more remote specialty consulting services
If you have the equipment in-house, just not the know-how, be sure to realize the full potential of your hardware by using remote specialty consulting services. Lean more heavily on radiology consultation services. Send your ultrasound images to an internist, not just to a radiologist. Don’t keep your microscope images to yourself—get an independent pathologist to weigh in.
Consider some of the AI services available on radiology and cytology images, too. It all makes for better patient care.
Will your clients revolt over prices?
Sure they might … if you’ve got less to show for their higher invoices. However, clients are more likely to question any lapses in service than balk at higher prices. Let your clients know your priority is to maintain the high level of veterinary care they have become accustomed to, despite the rising prices in all sectors of the economy.
Most clients will understand we are here for the patients first. And we will never do them justice if we can’t keep our doors open.
Patty Khuly, VMD, MBA, owns a small animal practice in Miami and is a passionate blogger at drpattykhuly.com. Columnists’ opinions do not necessarily reflect those of Veterinary Practice News.