14/04/2023
THE COST OF VETERINARY MEDICINE: BEHIND THE SCENES
This is a really long one, but please bear with me as it is important. And it’s required reading for the Zoom session later this month - see end of post!
We are all painfully aware of rising costs of everything at the moment. Some of us are already struggling with bills, and unfortunately many more may do so over the next few months and - dare I say - years, as the short term economic picture is not pretty.
As a profession, veterinarians are placed at the junction where decisions about the care of a living creature are often made based on money - how much the care costs, can we afford it, and how on earth can we make a decision to end a life if we can’t? Emotions run high, always - worry for the pet, empathy with their problems, stress about affording treatment (and inevitably the car breaks down at the same time, or the electric bill is due, or the kids have a school trip…), helplessness at the thought of our pets being in pain or distress, despair at the mere thought of losing them - the list is long, but through the very core of it all runs a deep vein of pure love. Love for the myriad creatures who share our lives, our homes, who fill our hearts with joy, who pick us up when we’re down and love us back unconditionally. So what price do we put on love? How can we even do so?
That is the thorny problem that veterinarians and pet owners across the globe struggle with on a daily basis, and we despair over it just as much as our clients do. As vets, knowing that we have the knowledge and the skills to help, and not always being able to because it would cost too much to do so, can be soul-destroying. As pet owners, knowing that our pets could be helped, but we just don’t have the money available to make that happen, is equally so.
Where do we go from here? Is there a solution? Our starting point is to have an understanding of the pricing structure of veterinary practices, and where the money you pay for your pets’ care actually goes.
Firstly, 20% of every veterinary bill in the UK is VAT. We are basically a glorified tax collector in that respect, and 20% of what you pay us goes directly to the government.
As for the remainder, any income a veterinary practice earns is apportioned as follows (these are approximates, and will vary between practices, more on this below):
- 40-50% on staff wages (includes vets, veterinary nurses, animal care assistants, receptionists, cleaners, practice managers, etc)
- 15-20% on overheads/fixed costs (mortgage/rent, electric/gas - and our bills have literally quadrupled in January when our contract switched over, water, phone/internet, all the many insurance policies we have to carry, accountant fees, health and safety company fees, employment law company fees, IT support fees, clinical waste disposal, regular waste disposal, card processing fees, website hosting, etc)
- 25-40% on COGS (Cost Of Goods and Services) - these are all the medications we buy in from our suppliers, all the consumables (syringes, needles, catheters, dressings, suture material, sterile surgical gowns, gloves, cleaning materials…), all the fees the outside labs charge us, the fees pet crematoria charge us; basically everything that we need to buy to help us take care of your pets
- 5-10% profit (and this profit is taxed again by the government at 25%)
If you add up the above percentages, you will notice that it is very possible for profit to be zero, or even in the negative numbers, and for some practices or in some months, it is, and some of those practices have had to close their doors as a consequence.
Profit is needed for any business to survive. Out of the profit line come equipment repairs, equipment replacement, equipment upgrade, new equipment if we want to provide an additional service (e.g. laser treatment, or endoscopy), staff raises, continuing education courses (all vets and nurses have to meet an annual quota of continuing education hours), any building repairs needed, and so on. A profit line allows us to deal with the unexpected, to be flexible, to replace that autoclave when it wears out and not go into overdraft. To have the reserves to cope with the reduced workload that came with COVID.
Let’s put this into real world terms. Your dog has had vomiting and diarrhoea for 2 days, you’ve taken her to the vets, they’ve discussed her history and symptoms with you, performed a physical examination, concluded it’s most likely a gastroenteritis, administered an injection for vomiting and sent you home with a couple of oral medications as a course of treatment, with the caveat to contact the practice should she not respond as expected. You’ve paid £120. Of that £120:
£20 goes to the government for VAT (it's actually £24 but let's keep the numbers round for ease)
£45 pays for the staff wages
£15 pays for overheads
£30 pays for COGS
£10 is practice profit (and remember: this is not true take home profit - as explained above, out of this come equipment and building repairs, staff raises, new services etc; and £2.50 of it goes to taxes)
As a real life example, we own a small practice - 2 vets, 5 nurses, a team of 14 people altogether. The break-even (without any profit) costs of running our practice are currently £60000 per month, inc-VAT, as a minimum, just to pay our bills. That is the real cost of running even a small veterinary practice. And it only scales upwards for larger practices.
What can we do about this? We can manipulate some of the numbers a little bit. Overheads/fixed costs we don’t have much control over. When it comes to COGS, we can shop around and make sure we get the most favourable prices - so if you notice that the brand of arthritis medication your pet takes is different every couple of months, that’s why. We can join a buying group, which is a way of taking advantage of bulk purchasing deals. We can make sure we are as efficient as possible, and waste as little as possible. We are all doing everything we can in this bracket.
Some of the things we can do to decrease our costs would also decrease the level of patient and client care we provide, so many of us don’t really want to do that - for example, we can decrease staffing levels (which may result in not having enough nurses available to monitor pets recovering from anaesthesia, or to maintain cleanliness, or to look after hospitalised patients), we can operate in less sterile environments, invest less in team education and supplies. Most pets will survive, but some won’t, and some will not do so well and have poorer outcomes. We can give you less of our time - shorter consults, not being available for questions over the phone, no lengthy e-mail explanations. The decision may become: do we compromise our pet and client service and take these measures, or do we increase prices again?
One question that often comes up is: why can we buy medication online for less than the vets charge? Most practices have historically used medication mark ups (meaning, charging clients more for medication than we purchase it for) in order to keep service fees (consults, surgery, hospitalisation) lower. The online retailers have thrown a massive wrench into the works here - because they purchase (and sell) drugs in such large quantities, they get big discounts from the manufacturers, so that in many cases they can sell the drugs to you for less money than vets are buying them for. And it is illegal for vets buy them online, we are strictly regulated and have to buy them from one of only 3 available national wholesalers. Whether we reduce our drug mark ups to encourage clients to continue buying medication from us, or whether we provide written prescriptions for our clients to buy medication online, the end result is the same - if vet practice drug revenue goes down, our service fees must come up to compensate. The only winners are the drugs manufacturers and the online retailers. So that is a factor as well.
The most useful thing that we can all do is talk to each other, and listen to each other’s side of the story. For our clients - I hope that you know and trust us well enough to know that you can always talk to us about your concerns, financial or otherwise. For those who are not our clients - I would encourage you to talk to your vets, get to know them over time, develop a relationship you can trust. This is, at its core, a relationship profession. The vets have your pets’ best interests at heart - helping your pets is the very reason they entered the profession in the first place. Talk about preventative care, nutrition, exercise, avoiding emergencies, various ways of keeping your pet well. When a problem arises, in most cases, there will be more than one way to deal with it. Your vet is always going to offer you the treatment option that should result in the best and safest outcome for your pet - and this is not always the most expensive option! However, if costs are an issue and option A is not affordable, there are usually options B, C, and even D. We may have to compromise a little on the outcome or cope with some side effects, but there is usually a way to provide treatment to fit most budgets. And yes, there are unfortunately some situations where there are no alternative options and then tough decisions may need to be made. But for most pets, there will be options.
We are all here, vets and pet owners alike, because we love animals and want to care for them. None of us would involve money in this equation if we could help it, but that is the reality of the world we live in. We need to communicate together with understanding, mutual respect and recognition that we all want the same thing - a happy, healthy pet to share our lives. And when our lottery win pans out, you can all come to our animal sanctuary for free treatment! Retirement goals :)
We’re planning on a Zoom meeting (or FB live, depending on what I manage to make work as technology and I are not the best of friends) towards the end of the month to discuss how we can best look after our pets on a tightening budget - I’d love for this to be a collaborative discussion so please bring all your questions and ideas! And look out for a separate post (pinned to top of page) about dates and times!
Dalya and Stan Livy
