Understanding Veterinary Fees
© 2004 Lowell Ackerman DVM DACVD MBA MPA
Purpose of Fees
w Cover fair labor costs
w Cover fair materials
costs
w Cover overhead costs
w Provide adequate return
on investment
Fees for goods and services vary with
w Location and Client Base
w Fees of competitors
w Actual costs
w Who’s performing the
service
w Perceived value by
clients
Industry “Standards?”
w Meet competitors prices for
“shoppable services” and what the market will bear for other services
w Drugs, Lab tests, &
Retail 2-3x cost (or 125-150% markup +)
w Exam fee-based Charges
w Benchmarking
A
Better Way
w Set service fees using
information on relevant labor figures, overhead, and materials charges
w Set drug fees based on a
stocking fee percentage and per-tablet base
w Set laboratory fees
based on collection services and an interpretation “base”
w Set Procedural fees based on time, materials and overhead
Life’s Inequities
w Veterinary hospitals
have very high “fixed costs” compared with medical offices (e.g., x-ray
equipment, surgery, etc.)
w Veterinary fees would be
adequate to pay veterinarians and technicians well if not for these high “fixed
costs”
w Therefore, must bill
according to costs
The Solution
w Make sure that all
“fixed costs” are, in fact, necessary and pay for themselves
w Concentrate on
“value-added” services rather than “jacked up” retail pricing so clients
receive value and you receive revenue
People will willingly
pay more for services that meet their needs and offer them convenience, time
saving, and real or perceived VALUE
Service “Costs”
w Direct Labor Hours
w Materials & Supplies
w Overhead
Overhead
This is an estimate of hospital costs that don’t include veterinary time nor materials used. The figure we’re using is based on keeping a hospital stocked and staffed with non-veterinary personnel and opening the doors for business. For most hospitals, that figure is $2-$3 per minute ($120-$180/hour). This figure also takes into account that staff can only help pay the overhead expenses when there is a veterinarian present to “drive” services.
In a very simple model, with one veterinarian and one staff member, the situation is easy to visualize. When the veterinarian doesn’t come in, or no clients utilize the service, the overhead costs (paying the staff, the utilities, etc.) are entirely borne by the practice owner. If a client comes in to see the veterinarian and a fecal flotation is performed, the office visit is charged based on veterinary fees, and the test charges should typically incorporate 5 minutes of technician time, which is part of overhead. The 5 minutes of the technician time is “dedicated” regardless of what else may be going on in the hospital. While the sample is sitting, in readiness to be read, the technician may do other things. But, for instance, it may take 1 minute to set up the sample and then 4 minutes to thoroughly scan the slide for parasites Even if the technician is very efficient, it is almost impossible for one individual (technician or veterinarian) to have 60 “billable” minutes in an hour.
When the practice is successful, a second technician will be added to the practice. This increases overhead in the largest category amount – staff salaries. Perhaps s/he is to assist with surgeries. If it takes 5 minutes to place an i.v. catheter, pricing that procedure should cover 5 minutes towards overhead expense. Note that if the technician only places one catheter in an hour period, only 5 minutes of overhead are covered by 60 minutes of technician time. The other technician doing the fecal also contributed 5 minutes towards overhead expense, and could not have placed the catheter in the same 5 minutes that s/he was doing the fecal. In this example, the two technicians only contributed a total of 10 minutes towards an hour of overhead expense. Veterinarians are the only “driver” of revenues, so that any procedures that can be done by staff that free up the doctor to generate more professional fees are worthwhile to the practice.
Eventually, multiple technicians will be hired, some taking radiographs, some doing lab work, some placing catheters, etc. In this instance, it may seem as though overhead is being charged multiple times to individual clients. In a perfect world, this would be true. However, in the real world, technicians don’t have 60 billable minutes in an hour, or 8 billable hours in a day. A technician that reads 10 fecals in a day, places 5 catheters and takes 2 sets of radiographs will likely have less than 2 hours of direct billable overhead time in that day. Telephone time, restraining animals, feeding animals, monitoring anesthesia, submitting laboratory samples, assisting in surgery, doing laundry and many other glamorous technician/assistant duties are not directly billable to clients (although one tries to reflect them in other hospital costs).
The goal is not to have technician time pay for all the overhead expense in the hospital, but to assign fees to procedures that can be done by paraprofessional staff to offset very real overhead expenses for the hospital.