Discounts that don't kill the practice (Proceedings)
For more than a decade, the rule of thumb for setting fees in veterinary medicine was simple: Raise 'em! The corollary to this rule of thumb was: don't worry about clients not wanting to pay; if you communicate the value of the procedure, they will gladly open their pocketbooks.
The recession has forced all businesses to re-evaluate how they operate. Not only are businesses having to deal with the current impact, they must look forward to what will likely be a changed post-recession environment. It is unlikely consumers will return to their free-spending ways. Some simply won't be able to and others are reducing spending out of choice. Many practices have not increased fees during the last two years at the rates they had previously. There is also evidence in the recently released Bayer Veterinary Care Usage Study and in other studies to indicate that fees may have been impacting the frequency with which pet owners visited veterinary practices even before the recession hit.
53% of the survey respondents in the Bayer study completely agreed or somewhat agreed with the statement "The costs of a routine visit to the veterinarian are usually much higher than I expected." Only 44% of pet owners disagreed (either completely or somewhat) with the statement "I am always on the lookout for a less expensive option for veterinary services or products." The study indicated that both the absolute price as well as the escalation of veterinary fees was a concern to pet owners. During one of the focus groups, one of the pet owners said: "All of a sudden, the price just skyrocketed. You could go when it was 60 bucks, now I can't get out for less than $150."Setting fees intelligently is not an easy task. Before a practice owner or manager can make a good decision about what to charge for individual services, he/she must first understand the true financial position of their practice, the goal of the fee change, some of the general approaches to setting fees, the importance of communication, how to monitor the impact of changes and the impact of financing alternatives. Discounting is one strategy.
"Discounting" is the deliberate reduction of fees charged to clients from what is stated in the fee schedule. It may be a partial discount or a 100% discount - either way the practice owner, the doctor on the case or a staff member is consciously deciding to reduce the fee for the services that the client received.
"Discounting" is not automatically a bad thing. Many businesses effectively use discounts to bring in clients for a particular service or during a slow time of the day or year. Discounts to clients who would have come in anyways and paid the full amount of the fee don't make sense as a marketing strategy. However, discounts that bring in clients who wouldn't have come in anyways or entice them to buy services they wouldn't have bought otherwise can be beneficial.
Veterinary practices generally have three kinds of discount programs: employee benefits, marketing programs, and charitable contributions to the community. In addition, they often have a large amount of random, unplanned discounts that doctors or staff gives simply because they are uncomfortable with the fee structure or are just nice people. These can add up to a surprising amount. It is critical that the practice periodically review all discounts and make sure they are still accomplishing the intended goal, if there was a particular goal in the first place.
The first step in the review of the practice's discounting activity is to identify all of the discounts. According to AAHA's Financial and Productivity Pulsepoints, the average dollar amount of discounts in both 2009 and 2007 was 2.6% of total gross revenue, up from 2.3% in 2005. Unfortunately, the amount captured by the practices' invoicing system is almost always understated and sometimes by a significant amount. The software system can only capture discounts that are entered as such. Ideally, if the practice is giving the client a discount it would show up on the invoice in some fashion similar to that shown below: