Be Strategic When Pricing Specific Treatments
Fees for services vary widely between practices, with each practice setting up its own service codes and attached fees. One practice may lump everything under the sun under a single hospitalization code, whereas another may break services out line by line with individual codes. For example, using the latter approach, IV fluid therapy would be invoiced separately as a service or treatment. Whichever method is chosen, capturing actual costs for in-house treatments before adding a desired profit margin is important to avoid lost income. Be strategic to establish realistic service fees that enable a practice to cover costs and make a reasonable profit.
Many veterinarians use the all-inclusive approach to keep things simple. Though this may prevent clients from feeling nickeled and dimed when they review their pet’s treatment plan, this approach can adversely affect both profitability and perceived value.
- A practice using an all-inclusive hospitalization fee likely sets the fee randomly without developing a pricing strategy that includes the practice’s fixed overhead costs, the veterinary nurses’ time spent on patient care, and the treatments delivered to the patient. A practice using this approach is highly unlikely to come close to breaking even.
- When the practice lumps everything under a single service code, the value of the patient’s treatments and nursing care is undermined. A client who sees the word hospitalization on the final bill may have no idea what went into his or her pet’s care. Some clients may view the line item as a simple kennel fee, which grossly understates the services and care a hospitalized patient receives.
How Much Does It Cost?
Median fees WellMPs charge:
- Physical examinations: $54
- Cephalic IV catheter placement, including clipping, cleaning, IV placement, and bandaging: $55
- IV fluids (1 L LRS): $43
- Use of a fluid infusion pump for 12 hours: $24
SOURCE: Benchmarks 2017: A Study of Well-Managed Practices. Columbus, OH: WMPB; 2017:20,22.
Separate Charges Approach
When a practice charges separately for each service and treatment delivered to a hospitalized patient, not only covering all costs but also making a profit is much more likely. By examining service items individually and deciding how to price each one, the practice is also demonstrating the value of each service they list on a treatment plan. Using the example of IV fluid therapy, here is the strategy a practice should use to price this treatment.
When pricing any nonshopped hospital service (ie, a service for which a client does not typically compare prices at different practices), consider these 4 factors:
- Overhead costs: All costs included in keeping a practice open (eg, rent, utilities, advertising). Overhead costs are usually calculated on a rate per minute for the entire practice but can be broken down by service area.
- Labor costs: The wages paid to the practice’s veterinary nurses and support team members. These costs are calculated by role on a per-minute basis, averaging the salaries to calculate the average rate of veterinary team pay.
- Material costs: The hard costs of purchasing any items used in the delivery of a service or treatment
- Profit margin: The percentage of a fee that is kept as profit after costs for that service are covered
To appropriately price IV fluid therapy and make a 25% profit margin, the practice should use this formula, in which total costs (ie, labor + overhead + material costs) is T and profit margin is P1,2:
Fee = T + P × Fee
If the practice determines that delivering IV fluid therapy requires 12 minutes of labor at $1.00 per minute, overhead costs are $0.25 per minute, and cost of materials used not covered by any other service fees is $7.00, the total cost is:
- T = (12 mins @ $1.00 per min) + ($0.25 @ 12 mins) + ($7.00)
- T = $12.00 + $3.00 + $7.00 = $22.00
- T = $22.00
Using the calculated costs and some trusty algebra skills, the service fee is calculated to be:
- Fee = ($22.00) + (25% × Fee)
- Fee = ($22.00) + 0.25Fee
- Fee – 0.25Fee = $22.00
- 0.75Fee = $22.00
- Fee = $22.00 ÷ 0.75
- Fee = $29.33
When determining service fees, consider including compensation for the patient’s veterinarian. In practices in which veterinarian compensation is production-based (eg, Production, Pro-Sal, Blended), rules should be in place setting out the amount that should be credited to the practice versus the amount fully credited to the attending veterinarian. If the service is eligible according to the practice’s compensation rules, the percentage compensation is added to the profit margin.
Continuing with the example above, to add 20% compensation for the attending veterinarian for the IV fluid therapy, add 20% to the practice’s profit margin:
- Fee = ($22.00) + ([20% + 25%] × Fee)
- Fee = ($22.00) + 0.45Fee
- Fee – 0.45Fee = $22.00
- 0.55Fee = $22.00
- Fee = $22.00 ÷ 0.55
- Fee = $40.00
Adopting a consistent pricing strategy for nonshopped services and treatments is essential to the financial health of any veterinary practice. IV fluid therapy is just one example of a service that can be profitable when the appropriate fee is assigned. Be sure to share the practice’s pricing strategy with the veterinary team to ensure team members know how and why fees are assigned and to enable them to more confidently present treatment plan costs to clients.
1Examine each service item individually when deciding on pricing, which forces not only a realistic calculation but also consideration of the value of the whole treatment plan offered to clients.
2Share the practice’s pricing strategy to ensure team members know how and why fees are assigned and give them the confidence to present treatment plan costs to clients.