The Pluses And Minuses Of Corporate Practice

The industry is changing, veterinary clinic owners can change with it.

Ted Sprinkle, DVM, has been in the veterinary field for more than 20 years, and in that time he’s owned three small animal practices and an equine practice. Dr. Sprinkle, owner of Wilmington, N.Y.-based Pet Partners, knows one thing for sure: The industry is changing, and he believes he can help veterinary clinic owners change with it.

“From my perspective, corporate affiliate practices are the future of primary care practice,” Sprinkle said.

Pet Partners owns 36 practices, with several holdings in Denver, in Texas and on out to the East Coast.

“Most of the veterinarians who sell to Pet Partners are individuals who are looking to get back to practicing medicine and looking at doing away with all the management and administrative burdens they carry,” he said.

A top reason independent clinic owners sell to corporations is the benefit of unburdening those owners of their management responsibilities, say many who are familiar with corporate practices. What else do corporate practices offer vets?

“We offer a consistent emphasis on medicine,” Sprinkle said. “We try to tend to inspire veterinarians to come back and practice the way they remember it.”

While clinic owners are of interest to Pet Partners, newly graduated veterinarians are a big focus as well.

“Young veterinarians can get a lot of experience and mentoring with us and grow their careers within the organization,” he said.

New Veterinarians

For example, vets who are just starting out can move from one venue to another to work in different locales, or they can work their way up the ladder to, say, medical director, he added.

“They’ll get a lot of hands-on experience, not just in medicine, but in business,” Sprinkle said.

That description butts up against notions held by some that corporate practices are financially driven, but putting the bottom line above all else is not only the wrong thing to do, it’s a bad business model in the veterinary world, said Peter DeFeo, senior vice president and general counsel at Hingham, Mass.-based VetCor.

VetCor has ramped up its buying pace in the past few years, largely because the profession is “moving to the next level,” DeFeo said, adding that the baby boomer generation has a lot of practice owners taking stock.

VetCor acquired 27 locations last year, the most the company has ever acquired in a year. Last year was also helped by 2012 being a year in which business owners were focused on tax law changes that occurred in 2013, where capital gains taxes rose.

“We’re certainly focused on the success of the practice, but that success is measured in a number of ways,” said DeFeo, who used terms like “best medicine,” and “best care” to argue his point, noting that such concepts will help “build a long-term sustainability of practices.”

“Just looking at numbers alone is not the right way,” DeFeo said.

Sprinkle said he understands what’s happened in human medicine in corporate practices, “where administrators are telling doctors how to practice, where to practice and when to practice,” but that’s not Pet Partners’ management style.

“We allow independent doctors to practice their own art, their own style.”

While the company does have guidelines, such as how practices should deal with customer services, customer interaction and client loyalty, its philosophy is otherwise hands-off on its clinics, Sprinkle said.

“In terms of telling veterinarians how to practice, we just don’t do that,” he said.

Win Lippincott, director of marketing for Veterinary Practice Partners in King of Prussia, Pa., sees corporate practices as saviors to vet clinics that are struggling but that want to continue serving their communities.

“There is no denying that a lot of DVMs overspend when they run their practices. That is why profit margins in the business are so low,” he said. “Most owners have never been taught how to manage inventory or set a staff schedule so they make mistakes. Corporate owners come in and remove the excess, creating a reputation for slashing spending.”

Lippincott also believes the best way to improve margins is not by excessively cutting costs, but by growing revenue.

“That’s why we invest so much in marketing,” he said. “We don’t partner with practices that are a firing away from being profitable. We partner with practices that we think can lead markets. For that to happen, we need the people and the assets that are in place to continue to grow. Cutting costs too far would be counterproductive to growing the practice and reaching its full potential.”

Counter Corporate

Rich Morris launched Chicago-based The Veterinary Cooperative in September and now has more than 170 members across the country.
Morris plans to “compete with the Banfields and VCAs by leveraging the collective buying power” of TVC’s members.

Morris has a history with corporations. He was part of an 80-year-old family business worth nearly half a billion dollars that was sold in 1998. Following that buyout, he went into teaching management at Lake Forrest College, and while there he thought a lot about how family and independent businesses can survive in corporatized marketplace.

His answer: cooperatives.

Becoming a member of Morris’ cooperative requires one to be an independent veterinarian—meaning you cannot be part of a corporation or on the stock exchange, and you must be at least 51 percent owned by doctors.

“I would say over 90 percent of our practices are owned by a single veterinarian or a group of veterinarians numbering no more than three,” he said.

Evidently, there’s plenty of interest from the veterinary industry in cooperatives, if TVC’s growth is any indication.

“We’re still growing,” Morris said. “My goal is to get up to 5,000 members.”

Equal Playing Field

The advantage of being in a cooperative over being independent, Morris said, is that clinics can be placed on the same playing field as corporations when it comes to pricing. Morris just signed a deal with a major pet food company, which he declined to name, that also sells product to the Phoenix-based PetSmart chain, as well as San Diego-based Petco.

Aside from a pricing advantage, Morris sees cooperatives as a last option for clinics that wish to remain independent.

There are several industries one can point to in which consolidation takes place and independents disappear, Morris said, citing as a “poster child” the hardware industry, which he views as being ruled by corporate giants with household names like Home Depot and Lowes Home Improvement.

“I don’t believe big corporations are bad, but I do think they tend to take choice out of the marketplace for the consumer,” he said. “The difference between Lowes and Home Depot is really very minimal. There’s no personal attention; they come to marketplace in the same way. One looks almost exactly like the other.”

To be efficient, large corporations that are buying up independents often set up formularies of what the doctors can and can’t do, how they can and can’t do it, and what they can and can’t buy, he said, adding, “They standardize everything. Then that starts jeopardizing the healthcare of the patients.”

Corporate practices also aren’t a good deal for veterinarians, Morris contends, because they take away choice and money.

“As soon as you give in to large corporations, you no longer have the ability to make you own choices,” he said. “And the harder you work doesn’t necessarily mean more money in your own pocket.”

But DeFeo believes selling to a corporation actually makes good financial sense for an independent veterinarian.

From a risk perspective, corporations typically have their own financing, and they can put more money down or buy a clinic outright, he noted.

“In our minds, you’re getting on balance more security, and you’re selling to a corporation that usually has substantially more resources,” DeFeo said.

The Real Estate Factor

Secondly, there’s often a real estate transaction to consider in any deal for a clinic. DeFeo said VetCor can provide landlords with a steady income stream off a lease—the company typically signs long-term triple net leases, he said—whereas an independent buyer doesn’t have such leverage.

For veterinarians who own their property, a better model may be to retain ownership of the real estate and lease it to provide themselves with a steady, long-term income stream, DeFeo said.

It not only helps if the veterinarian retains ownership of the property, but third-party landlords are often quicker to sign off on a lease deal with a well-financed corporation interested in a long-term lease, he added.

Lippincott believes his company’s business model has an answer to Morris’ assertion that everything becomes standardized at corporate practices.

Veterinary Practice Partners buys only a portion of the practice, keeping veterinarians on as co-owners, which Lippincott said “maintains the identity of each practice.” Veterinary Practice Partners merely manages the business functions while leaving clinical decisions to the medical professionals at each hospital.

“We work behind the scenes,” he said.

“As we see it,” Lippincott added, “just as many DVMs are ill-equipped to create an email marketing campaign, we as business executives are ill-equipped to decide how a sick pet should be treated. Instead, we focus on giving doctors the tools they need to practice good medicine—high-quality facilities, high-quality product and high quality equipment—and leave the rest to them.”

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