Shown below is the updated graphic we've been sharing each month; this includes the April 2022 VetSuccess revenue metrics shown on the Insiders' Insights KPI dashboard (https://www.vhma.org/resources/insider-insights) as well as placeholders for other related metrics that should also be reviewed regularly in order to get a complete picture of what's going on in a practice.
In order to put this in perspective, here is some of the same information for the last year showing the overall trends:
After strong growth in revenue in February 2022, practice growth, while still positive, was much less in March and April, although both those months had the same number of workdays as the same months in 2021. Patient visit numbers saw a small increase in February 2022 but large declines in March and April; this implies that the revenue growth is either due to fee increases or pet owners electing a broader spectrum of care. Note that data from an earlier 2022 Insiders' Insights report indicated much larger fee increases in 2022 than in previous years. New client numbers are seeing an ongoing decline; they have fallen for the last year, including a very large decline in April 2022. Are we seeing an end to the pandemic surge many practices have benefited from over the last two years?
Of course, the figures above are averages, and what is going on in other practices may not be the same as in yours.
In the last months, we have taken a deep dive into several of the key revenue metrics practices should regularly review (new clients, patient visits, and doctor productivity); we'll continue looking at revenue metrics this month. Last month we discussed missed charges, and this month we'll talk about a related metric—discounts.
It is not uncommon for 5-10% or even more of total revenue to be lost via discounts or missed charges in a typical practice. Discounts are a deliberate reduction of fees charged to clients compared to 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. This isn't always a bad thing; for example, a marketing discount that entices more clients to the practice can more than pay for itself if those clients wouldn't have visited otherwise. Random discounts, however, are another story—these are the discounts doctors and team members give for no reasonable purpose.
Periodic review of discount programs and ongoing medical record audits are essential to managing discounts; simply looking at the amount of discounts recorded in the Practice Information Management System isn't enough because discounts aren't always recorded separately on invoices.
To start, pull the medical records for 40 cases per doctor—this should be a mix of initial appointments, rechecks, and hospitalized cases. Compare the services provided to the client as documented in the medical record with what was charged on the invoice. Capture the results of the audit on a chart or a spreadsheet with the following items included: patient name, date and time of appointment, amount of invoice, type of appointment (surgery, hospitalization, outpatient), doctor, date, nurse (if known), receptionist (if known) and information about the discounted or missed charges (procedure performed, correct fee, actual fee charged, amount missed or discounted and whether or not a discount was part of a formal discount program the practice offers). Once the amounts discounted or lost are calculated for this sample, they can be extrapolated to the total practice revenue for an estimate of the total loss in a month or a year for the practice as a whole and by doctor.
After calculating the total amounts lost, discounts should be reviewed by type. 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 give simply because they are uncomfortable with the fee structure or are just nice people. 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 marketing discounts should first be reviewed. As noted above, 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. Take a look at each program individually; for example, if the practice gives a free exam to everyone who purchases a puppy at a local pet store in order to build its client base, is this really working? Is the practice actually getting and keeping these people as clients? Discounts to clients who would have come in anyway and paid the full amount of the fee obviously 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 purchased otherwise can be very beneficial. All formal discounts offered by the practice should be reviewed periodically and tracked over time to see if they are effective. If, after a trial period, the discount isn't accomplishing its goal, it should be phased out.
The next discount category to be reviewed is those given to employees. Employee discounts are a benefit used to attract and keep good quality staff. The questions to be asked when reviewing these discounts are:
- Are the benefits competitive with other practices?
- Are employees abusing the benefit?
- Are employee receivable balances too high?
Whether or not to continue offering these discounts is a question to be considered in a similar fashion to the offering of any other employee benefit.
Some practices give charitable discounts to animal welfare organizations or individuals who provide care to stray animals. The amount of charitable contributions given by a practice is at the discretion of the practice owner. The owners are truly the only people in the practice with the right to determine if those discounts are too much. Owners, of course, must understand the financial impact of these discounts when making that decision.
The last kind of discount is the random discount; that given for no particular reason. Most practices find a certain number of discounts in the medical record audit that aren't part of any particular program. Once the random discounts have been identified, it is important to search for patterns. Is the same doctor involved in all of the transactions? The same receptionist? Do these things happen on the same day of the week? Same time of day? Same type of appointment? Patterns will help identify the root of the problem. For example, is one doctor primarily responsible for most of the discounts? Are there certain kinds of fees that are regularly discounted? Once the root cause has been identified, steps can be taken to correct the problem. The corrective action depends on the problem identified.
What can be done to reduce the amount of random discounts?
First of all, review the practice's policy on the charging of fees and the use of discounts; if there isn't a policy, one should be written. The policy should very clearly state that employees are expected to charge the fees set by the practice and list the discounts that can be given and who can authorize them as well as any limitations. Practice owners and managers need to share the policy with all team members regularly and make it clear to employees that part of their job is to charge appropriate fees.
Review discounts given per doctor or other team members on a regular basis. Use this information to identify holes in the system that need to be plugged or individuals who need to be counseled about too many discounts given.
Often doctors are more inclined to give discounts than non-doctors. If so, designate non-doctors to enter charges into the computer system. Train these employees in the importance of accurate invoices and how to appropriately use the fee schedule.
Simplify the fee schedule so there are fewer choices by reducing the number of service categories and the number of individual services. Use the same prices for services that are essentially the same, for example, a short in-patient hospital exam and a short medical recheck exam. If one is priced less than the other, it will inevitably be selected more frequently.
Review miscellaneous charges and overrides on a frequent basis; these may be used to give away services at a price less than that which should be charged.
Use production pay, so the doctor's pay is impacted by any discounts given.
Designate an employee to review all invoice charges compared to the work done before (or very soon after) the client checks out.
Give associates a discount fund to use at their discretion for needy pets. Any discounts above that amount are paid 100% by the doctor.
Educate employees about the importance of profitability and the impact of inappropriate discounts. The 'business" of veterinary medicine should be talked about regularly at staff meetings; discuss whether revenue is growing or declining, what the daily breakeven cost is, what issues are impacting the profession, and the impact of discounts on the practice's financial health and the ability of the practice to invest in equipment, raises and employee benefits.
Doctors and other team members often give discounts when they can't justify to themselves the cost or the value of the services the practice provides. Leadership is critical in helping employees be comfortable with both. It is more difficult to justify high fees if the practice in question has fees that are much higher than others in the community, client service is poor, or it is not readily apparent what is better about this practice compared to others.
Discounts can be a very large drain on the practice's revenue. Many practices have some systems, policies, and rules in place to deter this from happening; however, few have done all they need to do. The goal is to see the right thing occur for "every client, every patient, every record, every time."
➤ Download Insiders' Insights - KPI, May 2022 Report
➤ VHMA Members can access the dashboard to drill down by region, species, and practice size filters, access the interactive KPI dashboard
Data review and commentary is provided by Karen E. Felsted, CPA, MS, DVM, CVPM, CVA of PantheraT Veterinary Management Consulting, www.PantheraT.com.
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